Economics Homework

This economics homework assignment covers topics like demand, supply, market equilibrium, externalities, and international trade. It includes problems with detailed solutions to help students understand these economic concepts.

Economics

Table of Contents
Question 1: The marginal private benefit and (demand) and marginal private cost (supply) of
education in China are described by ...............................................................................................3
Question 2: ......................................................................................................................................4
Question 3: Consider the apples in a small country. Domestic demand and supply is given by ....5
When government allows for international trade then equilibrium state changes from 6 units to 5
units. Therefore, equilibrium price decreases with increases in quantity. Under this condition,
winners are international companies who purchase apples on low price and sell it on high price.
While looser will be domestic country and buyers. .......................................................................6

Question 1: The marginal private benefit and (demand) and marginal private
cost (supply) of education in China are described by
P = 100 – 0.1 QD
P = 10 + 0.1 QS
a) Calculate the market equilibrium quantity and price of education
Solution: At equilibrium condition, Quantity of demand = Quantity of supply
QD = QS
(100 – P) * 10 = (P – 10) * 10
2P = 110
P = 55
Therefore, price of education is $55.
Market equilibrium quantity, (100 – P) * 10 = (100 – 55) * 10 = $450
Henceforth, Equilibrium Price = $55
Equilibrium Quantity = $450
b) Calculate marginal private benefit and marginal cost diagram
Price of education
($)
Market demand
($)
Market supply
($)
15 850 50
25 750 150
35 650 250
45 550 350
55 450 450
65 350 550
75 250 650
Demand Curve
Supply Curve
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c) An economist has estimated that consumption of education generates a positive externality of
$10 a unit. Calculate the social optimum and deadweight loss.
Solution: Socially optimal output is achieved when output is occurred by the intersection of
marginal social cost (MSC) and marginal social benefit (MSB) therefore, also known as
allocatively efficient level of output.
Marginal social cost = Marginal Profit Cost + Externality
= (100 – 0.1 QD) + 10
= 110 – 0.1 QD
Marginal social benefit = Marginal Profit Cost + Externality
= (10 + 0.1 QS) + 10
= 20 + 0.1 QS
Therefore, Marginal optimum = $65
Price of education
($)
Marginal social
cost
($)
Marginal social
profit
($)
25 850 50
35 750 150
45 650 250
55 550 350
65 450 450
75 350 550
d) What policy could the government implement to improve the market outcome?
Government play an important role in improving the market outcome by implementing
various policies. For improving educational system and promote education, cash transfer policy
helps in increasing enrolment and attendance. Through Conditional cash transfer, regular
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payment can be provided to poor household for meeting their certain conditions and engaging
children of them in education.
Question 2:
a) Impact of drought and bush fires on supply of coffee.
b) Suppose worldwide demand for coffee products increases after drought and bushfires.
Analyse the effect on world equilibrium quantity and price of coffee.
c) Effect of world equilibrium price and quantity of coffee, if trial of new spice is successful.
Answers:
a) Brazil is considered as the world’s third largest producer of coffee therefore, drought and
bush fires causes a high impact on its economy. It will cause hiking up price and nation
will also not in condition to export more in international level. This would lead to
increase import and decrease export as well which affects the economy.
b) When worldwide demand raises for coffee after drought or bush fire then it will lead to
hike price of coffee much due to decrease in supply. Therefore, in such condition
equilibrium quantity will also decreases with increases in price of coffee.
c) In order to meet demand of public for coffee, the alternative product or spice like tea will
successful. Then, it will help in keeping the equilibrium stable.
Question 3: Consider the apples in a small country. Domestic demand and
supply is given by
QD = 24 – P
QS = 3P
The world price is given by
PW = $2 unit.
a) Determine the equilibrium outcome in market with no international trade.
b) If government allows for international trade, what is the outcome in market?
c) Government has now implement a tariff of $2 per unit. What is the outcome in the market
now?
d) Determine the deadweight loss due to overproduction and under-consumption.
e) Is the tariff efficient?
f) Draw the demand and supply curve
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Solutions:
a) Equilibrium outcome with no international trade, QD = QS
24 – P = 3P
4P = 24
P = 6
Price ($) Quantity demanded Quantity supplied
2 22 6
4 20 12
6 18 18
8 16 24
10 14 30
b) Equilibrium outcome with international trade, QD = QS
(24 – P) + 2 = 3 (P + 2)
26 – P = 3P + 6
4P = 20
P = 5
Price ($) Quantity demanded Quantity supplied
2 24 12
4 22 20
5 21 21
8 18 30
10 16 36
When government allows for international trade then equilibrium state changes from 6 units to 5
units. Therefore, equilibrium price decreases with increases in quantity. Under this condition,
winners are international companies who purchase apples on low price and sell it on high price.
While looser will be domestic country and buyers.
c) When given small nation imposes tariff on import of its apples that competes with the apples
of small domestic industry, then under this condition tariff can neither affect the global prices nor
rest of the economy can be affected, because both of country and industry are small. Along with
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