Macroeconomics Homework Solution: Demand, Supply, and Opportunity Cost

This macroeconomics assignment solution addresses key economic concepts through several problems. The first question analyzes the market for flashlights, determining equilibrium price and quantity, and exploring the effects of excess supply and demand. The second question focuses on the Maine lobster market, constructing demand schedules, analyzing the impact of international demand on market equilibrium, and calculating the new equilibrium price and quantity after the addition of French demand. The third question utilizes a production possibility curve to examine Atlantis's production capabilities, determining the feasibility of different production combinations, calculating opportunity costs, and explaining the concept of increasing opportunity cost. The solution provides graphical representations and detailed explanations to illustrate these economic principles.

Running Head: MACROECONOMICS
Macroeconomics
Name of the Student
Name of the University
Author note

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Table of Contents
Answer 1......................................................................................................................................2
Answer a......................................................................................................................................2
Answer b......................................................................................................................................2
Answer c......................................................................................................................................2
Answer 2..........................................................................................................................................3
Answer a......................................................................................................................................3
Answer b......................................................................................................................................3
Answer c......................................................................................................................................3
Answer d......................................................................................................................................4
Answer 3..........................................................................................................................................4
Answer a......................................................................................................................................4
Answer b......................................................................................................................................5
Answer c......................................................................................................................................5
Answer d......................................................................................................................................5
Answer e......................................................................................................................................5

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Answer 1
Answer a
Figure 1: Demand, Supply and Equilibrium for flashlight
The equilibrium price is $4 and the equilibrium quantity is 8,000
Answer b
At $5, quantity supplied (10,000) is greater than quantity demanded (6,000). As supply
exceeds demand, a problem of excess supply exists. In response to excess supply, price is
expected to fall.
Answer c
At $2, quantity demanded per month (12,000) exceeds to the quantity supplied (4,000)
leading to a problem of excess demand in the market. Under the excess demand condition price
is expected to increase.

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Answer 2
Answer a
Figure 2: Demand, Supply and Equilibrium for Maine Lobster
Equilibrium price of lobsters is $15. The equilibrium quantity of lobsters demanded and
supplied at the equilibrium price is 600
Answer b
The demand schedule for Maine lobsters is now
Price
Demand
(US)
Demand
(France) Total Demand
$25 200 100 300
$20 400 300 700
$15 600 500 1100
$10 800 700 1500
$5 1,000 900 1900
Answer c

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Figure 3: Demand, Supply and Equilibrium under new scenario
After adding the French demand schedule the demand curve shifts to the right. This
implies sellers of Maine Lobster now face a higher demand at each prices. Accordingly, the
equilibrium shifts from E to E1. The new price at which fisherman can sell lobster is $20. The
final output of lobsters is 700.
Answer d
The price paid by US consumer now increases to $20 from $15 earlier. The quantity
consumed by US consumer now reduced to 400 from 600.
Answer 3
Answer a
No, Atlantis cannot produce 500 pounds of fish and 800 pounds of potatoes. As seem
from the production possibility curve, Atlantis can produce 800 units of potatoes in combination
with 300 pounds of potatoes. This is a point lies on the production possibility frontier. The

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combination of 800 pounds of potatoes and 500 units of fish lies outside the production
possibility frontier and hence, is not feasible.
Answer b
The opportunity cost of increasing annual output of potatoes from 600 to 800 units is 200
pounds of fish. Given the resource, in order to increases output of potatoes from 600 to 800 units,
Atlantis need to reduce output of fish from 500 pounds to 300 pounds. Hence, the opportunity
cost is (500-300) = 200 pounds of fish.
Answer c
In order to increase output of potatoes from 200 to 400 pounds, output of fish is required
to be reduced from 650 pounds to 600 pounds. Therefore, the associated opportunity cost is
(650-600) = 50 pounds of fish.
Answer d
The presence of increasing opportunity cost provide explanation for the reason behind
different answer for part b and part c. As Atlantis produces more and more potatoes the more fish
needs to be sacrificed. To increases potato output from 200 to 400 units involve an opportunity
cost of 50 pound of potatoes. However, later a same amount of increase in potato output from
600 to 800 units involves a higher opportunity cost of 200 pounds of fish. This happens because
as more and more resources are moved to one industry the inefficiency increases and hence is the
opportunity cost.
Answer e

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As observed from the above scenario on the production possibility curve increasing
production of one good causes a decline in production of some other goods. This implies the
production possibility curve sloped downward. Also because of the presence of increasing
opportunity cost the PPF is concave to the origin or bowed outward.