Macroeconomics

Directions

In this Assessment, your role will be a marketing specialist working for a production company. It is your job to explain to investors how the current status of the supply will meet the changing demand for the products, and the change in the production possibilities will be able to meet the market demand. With this background information and based on the following hypothetical examples provided below, compile answers that effectively address the supply and demand and the production possibility frontier. This Assessment requires a combination of short paragraph answers, computations, and completion of a 450500 word essay.

Answer the following questions.

Section 1: Economic Models and Comparative Advantage

According to the author, economists approach economic problems with economic models, and these models will help familiarize you with how economists approach economic problems. The models also help explain how individuals and countries gain from trade. Accordingly, trade allows people to specialize in the production of goods and services for which they have comparative advantages and, then trade for goods and services that other people produce based on their comparative advantages.

The questions deal with the application of the economic models and the roles of comparative advantage in the gains from trade.

1. Explain the difference between absolute advantage and comparative advantage. Which is more important in determining trade between individuals or countries? Is it absolute advantage or comparative advantage? Why?

2. Assume two students must prepare a presentation for their marketing class. As part of their class presentation, they must do a series of calculations and prepare 50 PowerPoint slides. It would take Larry 10 hours to do the required calculation and 10 hours to prepare the slides. It would take Kate 12 hours to do the series of the calculations and 20 hours to prepare the PPT slides.

A. How much time would it take the two students to complete the project if they divide the two tasks equally?

B. How much time would it take the two students to complete the project if they use comparative advantage and specialize in calculating or preparing slides?

C. If Larry and Kate have the same opportunity cost of $5 per hour, is there a better solution than for each to specialize in calculating or preparing slides?

3.  Assume there are only two countries in the world, and the two countries face the following production possibilities frontiers. Further assume that the two countries produce popcorn and peanuts.

Country As Production Possibilities Frontier      Country Bs Production Possibilities Frontier

Country As Production Possibility Frontier is a graph with the horizontal axis labeled in increments of 25 each from 25 to 250 and the label peanuts at the far right of the horizontal axis.  The vertical axis progresses up from the bottom in increments of 25 each from 25 to 300 and the label popcorn at the top.  From the 150 point on the vertical axis, a downward sloping to the right line extends to 250 point on the horizontal axis.
Country Bs Production Possibility Frontier is a similar graph with the same horizontal axis labeled in increments of 25 each from 25 to 250 and the label peanuts at the far right of the horizontal axis.  Similarly, the vertical axis progresses up from the bottom in increments of 25 each from 25 to 300 and the label popcorn at the top.  From the 300 point on the vertical axis, a downward sloping to the right line extends to 100 point on the horizontal axis.

A. Assume that country A and country B decide to use half of the resources in the production of each good. Indicate the points of the maximum output of each good on the graphs for each country as point A under such resource use.

B. Assume the two countries choose autarky and do not trade. What would be the total world production of popcorn and peanuts under the autarky?

C. Assume that each country decides to specialize in either popcorn or peanut based on its respective comparative advantage. Under the specialization, what is the total production of popcorn and peanuts?

D.  Assume country A and B decide to trade 100 units of popcorn for 100 units of peanuts, show on the graphs the gain each country receives from trade. Label these points on the two graphs B.

Section 2: Supply and Demand Model and PPF

This section deals with the Production Possibility Frontier and market forces of supply and demand models, as well as, the impacts of government policies on the interactions of supply and demand in the market economy.

1. Given the table below, graph the demand and supply curves for flashlights. Make certain to label the equilibrium price and equilibrium quantity.

Price

Quantity Demanded Per Month

Quantity Supplied Per Month

$5

6,000

10,000

$4

8,000

8,000

$3

10,000

6,000

$2

12,000

4,000

$1

14,000

2,000

a.  What are the equilibrium price and the equilibrium quantity?

b.  Suppose the price is currently $5. Explain what problem would exist in the market and calculate the size of that problem. What would you expect to happen to price?

c.  Suppose the price is currently $2. Explain what problem would exist in the market and calculate the size of the problem. What would you expect to happen to price?

2. Consider supply and demand for Maine lobsters indicated in the following tables to answers questions from ae below. Suppose that the supply schedule of Maine lobsters is as follows:

Price of Lobster per Pound

Maine Quantity of Lobster Supplied (pounds)

$25

800

$20

700

$15

600

$10

500

$5

400

First, assume that Maine lobsters can be sold only in the United States. The U.S. demand schedule for Maine lobsters is as follows:

Price of Lobster per Pound

USA Quantity of Lobster Demanded (pounds)

$25

200

$20

400

$15

600

$10

800

$5

1,000

a.  Looking at both the schedules of supply and demand, as well as the graph of the demand and supply curve for Maine Lobsters, what is the equilibrium price of lobsters and the equilibrium quantity of lobsters demanded and supplied at that price?

b.  Second, suppose that Maine lobsters can also be sold in France. The French demand schedule for Maine lobsters is as follows:

Price of Lobster per Pound

Quantity of Lobster Demanded (pounds)

$25

100

$20

300

$15

500

$10

700

$5

900

c.  What is the demand schedule for Maine lobsters now that French consumers can also buy them?

d.  Using the combined U.S. and French demand schedule, the U.S. demand schedule and the supply schedule, and the graph below, analyze the change in the market for lobsters. What will happen to the price at which fishermen can sell lobster? What will be the final output of lobsters?

e.  What will happen to the price paid by U.S. consumers? What will happen to the quantity consumed by U.S. consumers?

3. Atlantis is a small, isolated island in the South Atlantic. The inhabitants grow potatoes and catch fresh fish. The accompanying table shows the maximum annual output combinations of potatoes and fish that can be produced. Obviously, given their limited resources and available technology, as they use more of their resources for potato production, there are fewer resources available for catching fish.

Year

Quantity of Potatoes (Pounds)

Quantity of Fish (Pounds)

A

1,000

0

B

800

300

C

600

500

D

400

600

E

200

650

F

0

675

Examine the Maximum annual output options table above and the resulting Production Possibility Frontier Graph below and answer questions from a-e.

The image is a depiction of a Production Possibility Frontier graph with the horizontal axis labeled Pounds of Potatoes and representing the pounds of potatoes produced, from zero on the left to 1,000 on the right, and the vertical axis labeled POUNDS of FISH and representing the pounds of fish produced with zero on the bottom and 800 at the top. A descending right hand red curve connects the small square red points for zero potatoes and 675 pounds of fish, 200 pounds of potatoes and 650 pounds of fish, 400 pounds of potatoes and 600 pounds of fish, 600 pounds of potatoes and 500 pounds of fish, 800 pounds of potatoes and 300 pounds of fish, and 1,000 pounds of potatoes and zero pounds of fish.  The entire area under the curve is highlighted in light pink.  The area under the curve representing the differences between the point for 600 pounds of potatoes and 500 pounds of fish, to the point representing 800 pounds of potatoes and 300 pounds of potatoes is highlighted in yellow.  The area representing the difference between the point for 200 pounds of potatoes and 650 pounds of fish, to the point representing 400 pounds of potatoes and 600 pounds of fish is highlighted in blue.  Superimposed on the entire graph is an right arrowed horizontal black line from 500 pounds of fish pointing to a black dot, and an up arrowed vertical black line from the 800 pounds of fish pointing to the same black dot.  The black dot is labeled, in a black outlined rectangle, b.?.  On the far right of the image is a legend that has a short red line with a small red square in the middle and the label in black entitled Potatoes & Fish.

a.  Can Atlantis produce 500 pounds of fish and 800 pounds of potatoes? Explain.

b.  What is the opportunity cost of increasing the annual output of potatoes from 600 to 800 pounds?

c.  What is the opportunity cost of increasing the annual output of potatoes from 200 to 400 pounds?

d.  Can you explain why the answers to parts b and c are not the same?

e.  What does this imply about the slope of the production possibility frontier?

Section 3: Economic Models Application

Now that you have segmented the components of the changes in supply and demand and the ability to meet demand, explain how the current status of the supply will meet the changing demand for the products, and the change in the production possibilities will be able to meet the market demand.

Minimum Submission Requirements

This Assessment should be completed in this template.
Respond to the questions in a thorough manner, providing specific examples of concepts, topics, definitions, and other elements asked for in the questions. Your paper should be highly organized, logical, and focused.
Your paper must be written in Standard English and demonstrate exceptional content, organization, style, grammar, and mechanics.
Your paper should provide a clearly established and sustained viewpoint and purpose.
Your writing should be well ordered, logical and unified, as well as original and insightful.
A separate page at the end of your paper should contain a list of references, in APA 6th edition format. Use your textbook, the Library, and the internet for research.
Be sure to cite both in-text and reference list citations were appropriate and reference all sources. Your sources and content should follow proper APA 6th edition citation style. Review the APA formatting and citation style found in the Academic Success Center. (It should be in Times New Roman 12-point font, include correct citations, Standard English with no spelling or punctuation errors, and correct references at the bottom of the last page.)

 

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