Economics for International Business Homework: Kufstein FH

This assignment solution covers key concepts in international economics, including comparative advantage, price elasticity of demand, and market equilibrium. It analyzes Robinson Crusoe and Friday's production possibilities, determining absolute and comparative advantages in coconut gathering and fish catching. The solution also examines the impact of technological advancements on the tablet and laptop markets, assessing consumer and producer surplus. Furthermore, it calculates price elasticity for a newspaper, advises on pricing strategies, and determines equilibrium price and quantity in a market with given supply and demand functions. Finally, it analyzes the effects of a tax on the equilibrium and calculates tax revenue and deadweight loss. The assignment includes relevant diagrams and references to support the analysis.

Running head: INTERNATIONAL ECONOMICS
International economics
Name of the student
Name of the university
Author note

25
30
10 20
INTERNATIONAL ECONOMICS
Problem 1)
Coconut Fish
Robinson Crusoe 25 10
Friday 30 20
Answer a)
The opportunity cost of catching one fish for Crusoe is 25/10 which is 5/2 parts of coconut
The opportunity cost of Friday for catching 1 fish is 30/20 which is 3/2 parts of coconut
Answer b)
From the above table we can be seen that Friday have an absolute advantage in catching fish.
Robinson Crusoe have to give up 5/2 parts of coconut for catching 1 fish and Friday have to
give up 3/2 parts of coconut for catching one fish. As 3/2 is less than 5/2, there it can be said
that Friday have the opportunity cost in catching fish as Friday has to give up less coconuts to
catch fish.
Answer C)
Production possibility curve

C.S
P.S
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Problem 2)
Answer a)
From the above diagram it can be seen that the supply curve moves right. When technological
advance reduces the cost of production of tablet device, the production and the supply
increas4es which moves the supply curve to the right. As supply increases the producer
surplus increases and the consumer surplus also increases.
Answer b)
In this case as tablet devices and laptops are substitutes, the technological advance will make
the production cost of tablet devices lower and this will make laptop costlier. Therefore,
laptop producers will be sad as cost of production laptops will be higher compared to tablet
devices.
Answer c)
Laptop producers will be happy when as both laptops and tablet devices are complementary
in nature. As the technological advances made the production cost cheap for tablet devices,
the supply of laptops will increase as th supply of tablets increases. This will make laptop
producer happy.

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Problem 3
Answer a)
Percentage change in quantity
65000-40000/(65000+40000)/2 *100
(25000/52500)*100
47%
Percentage change in price
1.50-1/(1.5+1)/2*100
40%
Therefore price elasticity of demand is
47/40 = 1.175
Answer b)
TT exhibits unit price elasticity.
As in this case TT exhibits an unitary elastic demand, in this case the demand curve will be
in the shape of unitary elastic.
Answer c)
If the motive of TT is to maximize revenue, it should not increase its price from €1.00 to
€1.50. The reason behind this is that when price rises the subscribers will fall from 65,000 to
40,000, which shows the newspapers is an elastic good. As a result of this when TT will

INTERNATIONAL ECONOMICS
increase its price, the sale will go down. Therefore, in case of elastic goods, it is advisable not
to increase the price.

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Problem 4
Given supply and demand function
QS = 3P
QD = 360 - 3P
Answer a)
3P = 360 - 3P
6P =360
P = € 60
Equilibrium quantity will be 3*60= 180 units.
Answer b)
In case of price ceiling there is a result of shortage. A price ceiling takes place when a
government puts a legal limit on how high the price of the product can be. In case of price
ceiling there is more demand than the equilibrium demand.
When a price ceiling of €40 is imposed the quantity demanded becomes €240 and quantity
supplied becomes €120. There is a result of shortage of (240-120) which will be equal to
€120

INTERNATIONAL ECONOMICS
Problem 5
Given I the question the initial supply and demand function are
QS = 3P
QD = 360 - 3P
When a tax of amount T = €40 is added the supply function changes to QS = 3(P - 40)
Therefore, the new demand and supply equation becomes QD = 360 - 3P and QS = 3(P - 40)
The new equilibrium price becomes
360 - 3P=3(P - 40)
360-3P =3P -120
6P=360+120
6P=480
P =80
Therefore, the equilibrium price after tax becomes €80
Now the equilibrium quantity becomes 360 - 3P ( putting P = 80)
360-3*80
360-240
120 units
Answer b)
The tax revenue collected will be quantity and tax
120*40 = €480

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Answer c)
The deadweight loss will
½ (q2-q1)(p2-p1)
=1/2*60*20
600 units

INTERNATIONAL ECONOMICS
REFERENCE LIST
Baumol, W. J., & Blinder, A. S. (2015). Microeconomics: Principles and policy. Nelson
Education.
Cowell, F. (2018). Microeconomics: principles and analysis. Oxford University Press.
Tresch, R. W. (2014). Public finance: A normative theory. Academic Press.
Varian, H. R. (2014). Intermediate Microeconomics: A Modern Approach: Ninth
International Student Edition. WW Norton & Company.