Diamonds Pearls Diamonds Pearls - Economics Assignment Help

Assignment Task

Diamonds Pearls Diamonds Pearls

The countries of X and Y produce diamonds and pearls. The production possibilities scheduled below describes their potential output in tons per year:
Points on production possibilities curve Country X Country Y
Diamonds Pearls Diamonds Pearls
A 150 0 90 0
B 100 25 60 60
C 50 50 30 120
D 0 75 0 180

• Using the data in the table, answer the following questions:
• What is the opportunity cost of diamonds for each country? (1 mark)
• What is the opportunity cost of pearls for each country? (1 mark)
• In which good does Country X have a comparative advantage? (1 mark)
• In which good does Country Y have a comparative advantage? (1 mark)
• Suppose Country X is producing and consuming at point B on its production possibilities curve and Country Y is producing and consuming at point C on its production possibilities curve. Construct a table to explain why both nations would benefit if they specialized in each good. (5 marks)
• Draw a graph and use it to explain how Country X and Country Y benefit if they specialize and Country X agrees to trade 50 tons of diamonds to Country Y and Country X receives 50 tons of pearl in exchange. (5 marks
• A steel manufacturer is located close to Kuala Lumpur. During production, it emits carbon monoxide which creates an external cost to the local community. The private cost of production creates the external cost to the public and the car producers incurs the private benefit.
• Draw a graph to show the market price and quantity and plot the effects of including external costs. Show the socially optimal quantity of steel. (2 marks)
• Show the area of net welfare loss on your graph. (2 marks)
• Pigouvian Tax can be employed to deal with the problem of external costs. Show in the graph and explain how the tax can solve the problem. (2 marks)
•  
• Ah Beng, Muthu, Ali, and Ramjit have just made a documentary movie about their childhood life. They are thinking about making the movie available for download on the Internet, and they can act as a single-price monopolist if they choose to. Each time the movie is downloaded, their Internet service provider charges them a fee of $4. The 4 brothers are arguing about which price to charge customers per download. The accompanying table shows the demand schedule for their film.
• Calculate the total revenue and the marginal revenue per download. (2 marks)
• Ah Beng is proud of the film and wants as many people as possible to download it. Which price should he choose? How many downloads would be sold? (2 marks)
• Muthu wants as much total revenue as possible. Which price should he choose? How many downloads would be sold? (2 marks)
• Ali wants to maximize profit. Which price should he choose? How many downloads would be sold? (2 marks)
• Ramjit wants to charge the efficient price. Which price should he choose? How many downloads would be sold? (2 marks)
• The accompanying table lists the cross-price elasticities of demand for several goods, where the percent quantity change is measured for the first good of the pair, and the percent price change is measured for the second good.
• a. Explain the sign of each of the cross-price elasticities. What does it imply about the relationship between the two goods in question? (3 marks)
• b. Compare the absolute values of the cross-price elasticities and explain their magnitudes. For example, why is the cross-price elasticity of McDonald’s burgers and Burger King burgers are less than the cross-price elasticity of butter and margarine? (3 marks)
• c. Use the information in the table to calculate how a 5% increase in the price of Pepsi affects the quantity of Coke demanded. (2 marks)
• d. Use the information in the table to calculate how a 10% decrease in the price of gasoline affects the quantity of SUVs demanded. (2 marks)

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