ECON 2301 – Principles of Macroeconomics

Homework -1/ Professor – Mohammad Nasim

Due Date –September 11, 2020 - (Lecture 1, Lecture 2 and Lecture 3)

Question 1 – 2 points

You want to go the Six Flags amusement park. The ticket price to enter and enjoy the rides in Six Flags is
$65. You live in Richardson and you need to take an Uber to go there which will cost you $40.
Approximately, you will spend 6 hours in the park. Instead of going to the park, you could have driven as
an Uber driver and for 4 hours (out of the 6) and earned $12 per hour. If you decided not to drive the
Uber, you could have also played an online competition during this time and earned $25

a. What is the Opportunity Cost of going to Six Flags? (1)

- 32
b. What is the total cost of choosing to go the Six Flags? (1)
105

Question 2 – 10 points

Tables Chair
USA 15 25
Canada 20 30
Mexico 25 35

a. Which country has the absolute advantage of producing chairs? Why? (2)
USA because the opportunity cost to produce chair is less than Mexico and Canada
b. What is the opportunity cost to produce 1 unit of chair in USA? In Canada? In Mexico? (3)
opt cost for USA 0.6
for Canada 0.67
for Mexico 0.71
c. Given these countries engage in trade and specialization, which country should specialize in the
production of chairs? Why? (2)united states should because it has less opportunity cost to
produce chair which will be more profitable.
d. What price should USA charge for 1 unit of chair in terms of table to Canada & Mexico? (1)
1 chair will be 4/5 Canada chair
1 chair will be 1 Mexico table
e. Assume, USA is charging 0.75 units of tables for 1 unit of chair to the rest of the world. Which
country from the table will buy the chairs from USA? Why? (2) Mexico because the number of
chairs is high it will get more tables than Canada.

Question 3 – 8 points
Based on the graph, assume Point A has 8 units of forest and 4 units of timber. Point B has 3 units of
forest and 8 units of timber.
a. What is the opportunity cost of moving from Point A to Point B in terms of forest? (2)
-5
b. Is this an example of increasing cost or constant cost?(1)
Increasing cost
c. What does Point C refer to in terms of economics in this graph? (1)
Unemployment of resource
d. Suppose there is a wildfire in this country. What will happen to total output and the PPF? (2)
The will both decrease
e. If the Opportunity cost is constant between forest and timber, how will the PPF look like? (2)
It will have a straight line.