Econ100.2IntroductiontoMicroeconomicTheory&Policy Exercise#1 1. SupposethegovernmentdecidestolowerthecostofridingtheMRTbyreducingthefare by5pesos. a) WhatdoyouthinkwouldhappentothenumberofpeoplewantingtotaketheMRT? b) Whatdoyouthinkwouldhappentotheamountoftimeitwouldtakewaitingforthe MRT? c) Thinkingintermsofopportunitycost,wouldthelowerfarenecessarilylowerthetrue costofridingtheMRT? d) WouldtheopportunitycostofridingtheMRTbethesameforpeoplethatare unemployedandpeoplewithjobsearning180pesosperhour? 2. Supposethefollowingtableprovidesinformationabouttheproductionpossibilityfrontier ofAustralia.

ia. Balls 0 100 200 300 400 500 a) PlotandconnectthesepointstocreateAustraliasproductionpossibilitiesfrontier. b) IfAustraliacurrentlyproduces100ballsand400nets,whatistheopportunitycostofan additional100balls? c) IfAustraliacurrentlyproduces300ballsand300nets,whatistheopportunitycostofan additional100balls? d) Whydoestheadditionalproductionof100ballsinpart(c)causeagreatertradeoffthan theadditionalproductionof100ballsinpart(b)? e) SupposeAustraliaiscurrentlyproducing200ballsand200nets.Howmanyadditional ballscouldtheyproducewithoutgivingupanynets?Howmanyadditionalnetscould theyproducewithoutgivingupanyballs? f) Istheproductionof200ballsand200netsefficient?Explain. Nets 420 400 360 300 200 0

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Econ100.2IntroductiontoMicroeconomicTheory&Policy Exercise#1 3. SupposeaworkerinMalaysiacanproduce6computersor3carsperweek.Supposea workerinIndonesiacanproduce8computersor2carsperweek.Forsimplicity,assume thateachcountryhasonlyoneworkerandtheworkerworksonlyoneweek. a) Filloutthefollowingtable: ProductionOpportunitiesofMalaysiaandIndonesia Malaysia Indonesia b) Graphtheproductionpossibilitiesfrontierforeachcountry. c) WhatistheopportunitycostofacomputerinMalaysia?Whatistheopportunitycostof acarinMalaysia? d) WhatistheopportunitycostofacomputerinIndonesia?Whatistheopportunitycostof acarinIndonesia? e) Whichcountryhastheabsoluteadvantageinproducingcomputers?Howaboutcars? f) Whichcountryhasthecomparativeadvantageinproducingcomputers?Howabout cars? g) Eachcountryshouldtendtowardspecializationintheproductionofwhichgood?Why? h) Whataretherangeofpricesforcomputersandcarsforwhichbothcountrieswill benefit? i) SupposethatMalaysiaandIndonesiasettleonatradingpriceof3computersfor1car (or1/3ofacarfor1computer).Plotthefinalconsumptionpointsonthegraphsyou madeinpart(b)above.Arethesecountriesconsuminginsideoroutsideoftheir productionpossibilitiesfrontier? j) SupposetheproductivityofaworkerinMalaysiadoublessothataworkercanproduce 12computersor6carsperweek.Whichcountryhastheabsoluteadvantagein producingcomputers?Howaboutcars? k) AfterthedoublingofproductivityinMalaysia,whichcountryhasacomparative advantageinproducingcomputers?Howaboutcars?Hasthecomparativeadvantage changed?Hasthematerialwelfareofeithercountrychanged? l) Howwouldyouranalysischangeifyouassumed,morerealistically,thateachcountry had15millionworkers? m) Whatmightmaketwocountrieshavedifferentopportunitycostsofproduction? Computers Cars

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