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##### ECON102 HW

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solution

**Question**

Question;1. (25 points) Assume Nebraska and Virginia each;have 100 acres of farmland. The following table gives hypothetical figures for;yield per acre in the two states;Nebraska Virginia;Wheat 16 4;Cotton 9 3;A) (8;points);Who has;the absolute advantage in the production of wheat?;Who has;the absolute advantage in the production of cotton?;Who has;the comparative advantage in the production of wheat?;Who has;the comparative advantage in the production of cotton?;B) (8;points) In this exercise, you will find actual points on the combined PPC of;the two states. For each of the;following values of one good, calculate the maximum amount of the other good;that the two countries could produce working together.;Wheat;Cotton;640;210;570;1700;C) (9;points);a) On;the back of this page, draw the graph for the PPF of the two states;combined. On the graph, put the quantity;of wheat on the vertical axis, and the quantity of cotton on the horizontal;axis. Be sure to label your graph;carefully to receive full credit!;b) What;is the marginal rate of transformation when the two states are producing a;total of 200 units of cotton?;2. (17;points) Suppose the demand for guitars in State College is given by Qd = 5260 ?;12P where Qd is the quantity demanded, and P is the price of guitars. Also, suppose the supply of guitars is given;by Qs = 9P ? 1460, where Qs is the quantity supplied of guitars.;(6;points) Calculate the equilibrium price of guitars and the equilibrium quantity;of guitars in State College. Show your;work.;(6;points) Suppose the actual price of guitars is $340. Determine if there is a shortage, a surplus;or if the market is in equilibrium at a price of $340. If there is a shortage or surplus, calculate;how much the shortage or surplus is.;(5;points) Given your answer to b), is the price of guitars likely to rise, fall;or stay the same?;3. (8 points) Suppose the government increases;the minimum wage. Fast food restaurants;use minimum wage workers to produce cheeseburgers. On the back of this page, using a graph;illustrate how the increase in labor costs due to the increase in the minimum;wage will affect the market for cheeseburgers.;You may assume that there are no other significant changes in the;cheeseburger market other than the increase in the minimum wage. Be sure to label your graph carefully and;accurately, and clearly show what happens to the equilibrium price and quantity;of cheeseburgers.

Paper#56471 | Written in 18-Jul-2015

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