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Economics assignment

The document is a worksheet and assignment for an Introduction to Economics course at the University of Gondar, covering various economic concepts such as production possibilities, budget constraints, utility maximization, cost functions, and GDP calculations. It includes problems related to opportunity costs, consumer behavior, production functions, and unemployment rates. The assignment is structured in a question-and-answer format, requiring calculations and interpretations of economic principles.

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9 views

Economics assignment

The document is a worksheet and assignment for an Introduction to Economics course at the University of Gondar, covering various economic concepts such as production possibilities, budget constraints, utility maximization, cost functions, and GDP calculations. It includes problems related to opportunity costs, consumer behavior, production functions, and unemployment rates. The assignment is structured in a question-and-answer format, requiring calculations and interpretations of economic principles.

Uploaded by

edosachala6186
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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University of Gondar

College of Business and economics


School of Economics
Introduction to Economics Worksheet and Assignment! (2017 ext)
1. Assume that a certain simplified economy produces only two goods, X and Y, with given
resources and technology. The following table gives the various possible combinations of
the production of the two goods (all units are measured in millions of tons).

Production Good X Good Y Opportunity Cost of


Possibility Good X
A 0 100
B 2 90
C 4 70
D 6 40
E 8 0

A. Calculate the opportunity cost of the production of good X at each point. What law
does the trend in those values exhibit?
B. What changes are required for this economy to shift the PPF outward?
2. A person has $ 200 to spend on two goods X and Y whose respective prices are $2 and
$5.
A. Draw the budget line.
B. What happens to the original budget line if the budget falls by 25%?
C. What happens to the original budget line if the price of X doubles?
D. What happens to the original budget line if the price of Y falls to $4?
3. A rational consumer spends all of her income on two goods: Apple and Banana. Suppose
the last dollar spent on Apple increased her total utility from 60 utils to 68 utils and the
last dollar spent on Banana increased her total utility from 25 utils to 29 utils. If the price
of a unit of Apple is 2 Birr, what is the price of a unit of Banana at equilibrium?
4. Given utility function U= X 0.5Y 0.5 where PX = 12 Birr, Birr, PY = 4 Birr and the income
of the consumer is, M= 240 Birr.
A. Find the utility maximizing combinations of X and Y.
B. Calculate marginal rate of substitution of X for Y (MRSX,Y) at equilibrium and
interpret your result.
5. Suppose the production function is given by Q(L,K) = L3/4 K1/4. Assuming capital is
fixed, find APL and MPL.
6. A firm operates in a perfectly competitive market. The market price of its product is 4
1
birr and the total cost function is given by 𝑇𝐶 = 3 𝑄 3 − 5𝑄 2 + 20𝑄 + 50, where TC is
the total cost and Q is the level of output.
A. What level of output should the firm produce to maximize its profit?
B. Determine the level of profit at equilibrium.
C. What minimum price is required by the firm to stay in the market?
7. Consider the following short run production function: Q 6L2 0.4L3
A. Find the value of L that maximizes output
B. Find the value of L that maximizes marginal product
C. Find the value of L that maximizes average product
1
8. Given a short run cost function as 𝑇𝐶 = 3 𝑄 3 − 2𝑄 2 + 60𝑄 + 60 , find the minimum
value of AVC and MC.
1
9. Suppose a particular consumer has 8 birr to be spent on two goods, A and B. The unit
price of good A is 2 birr and the unit price of B is 1 birr. The marginal utility (MU) she
gets from consumption of the goods is given below.

Quantity MUA MUB

1 36 30
2 24 22
3 20 16
4 18 12
5 16 10
6 10 4
A. Based on the cardinal analysis, what is the combination of the two goods that gives
maximum utility to the consumer?
B. What is the total utility at the utility maximization level?

10. Consider the following information for a particular economy.


Total population = 60 million Number of employed = 30 million
Total labor force = 40 million Natural rate of unemployment = 12%

A. Find the total unemployment rate


B. Calculate the cyclical unemployment rate

11. Consider an economy that produces and consumes Bread and Automobile. Data for two
different years 2005 and 2010 is given in the following table.

Year 2005 2010

Price of Automobiles $ 4000 $ 6000

Price of a loaf of bread $10 $30

Number of automobiles produced 100 220


Number of loaves of bread produced 500,000 600,000

Using the year 2005 as a base year,


A. Calculate the nominal and real GDP of 2010.
B. Find the value of GDP Deflator for the year 2010 and interpret the result.
C. Calculate the annual and five year inflation rate in 2010.

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