National University: ECO 203: Homework assignment #1: Chapters 1-4 (50 points) 1. Using the law of diminishing marginal utility, briefly explain why it is often suggested not to go shopping for groceries when you are hungry. How might hunger influe
National University: ECO 203: Homework assignment #1: Chapters 1-4 (50 points)
1. Using the law of diminishing marginal utility, briefly explain why it is often suggested not to go shopping for groceries when you are hungry. How might hunger influence your purchasing decisions and the perceived value of food items? (4 points)
2. A nation has a fixed amount of arable land that can be used to grow either staple crops to ensure food security or cash crops for export to generate foreign exchange. Policymakers decide to prioritize staple crops. What is the opportunity cost of this decision? (3 points)
3. The law of demand states that price and quantity demanded of a good are inversely related. Explain how the law of diminishing marginal utility helps to explain this relationship. In your answer, provide an example to illustrate your point. (3 points)
4. The law of supply states that price and quantity supplied of a good are directly related. Explain how the principle of increasing opportunity cost supports this relationship. In your answer, provide an example to illustrate your explanation. (3 points)
5. Construct a correctly labeled graph of supply and demand, based schedule below and answer questions 1-5. (2 points each)
Price of good x Quantity Demanded of good x Quantity Supplied of good x
$4 1,400 0
$6 1,200 150
$8 1,000 300
$10 800 450
$12 600 600
$14 400 750
1. At what price will you find no shortage, nor surplus?
2. Identify any price that would result in a surplus of good x.
3. How would a decrease in demand affect the equilibrium price and equilibrium quantity?
4. How would an increase in supply affect the equilibrium price and equilibrium quantity?
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You may choose the grid below or use your own.
6: Illustrate with a diagram, like the examples below, or provide a verbal explanation of how each described event affects market supply or market demand. Then, indicate whether the equilibrium price and quantity will increase or decrease. (9 points)
Event 1: How does a shift in consumer preference toward sustainable goods affect the supply curve in the renewable goods (X) market?
Event 2: If the price of bicycles decreases, how would this affect the demand for bicycle helmets and accessories?
Event 3: The market for cell phone chargers (good x): Price of cell phones, a complement for cellphone chargers, fall.
7. Country X produces two goods, trucks, and boats (in millions).
Country X’s PPF below shows the combinations of truck and boat choices available to it, given all resources available to it.
a. In terms of efficient use of resources is choice D an efficient one? Explain. (2 points)
b. In terms of efficient use of resources explain the switch in choice from point D to B. Is country X making a trad-off between trucks and boats? Is choice B an efficient one? (4 points)
c. In terms of efficient use of resources explain the move from point B to A. Is country X making a trad-off between trucks and boats? Are choices B and G efficient? (3 points)
d. Is country X’s choice at point G an efficient one? explain. (3 points)
8: Use graph below, answer questions a- d: (8 points)
a) Choose any one price that would be considered a “price ceiling”.
b) Explain why some economists might disagree with imposition of a price ceiling on product X.
c) What is the consumer’s surplus at 300th unit of output.
d) Give an example of a good or a service that might rationalize imposition of a price ceiling on.
