SOLUTION: ECON 201 Saudi Electronic University Principle of Microeconomics Questions

Attached. Please let me know if you have any questions or need revisions.College of Administrative and Financial SciencesAssignment-1Deadline: 24/02/2021 @ 23:59Course Name: MacroeconomicsStudent’s Name:Course Code: ECON201Student’s ID Number:Semester: IICRN:Academic Year: 1441/1442 HFor Instructor’s Use onlyInstructor’s Name:Students’ Grade:/ 5Level of Marks: High/Middle/LowInstructions – PLEASE READ THEM CAREFULLY•The Assignment must be submitted on Blackboard (WORD format only) via allocatedfolder.•Assignments submitted through email will not be accepted.•Students are advised to make their work clear and well presented, marks may be reduced forpoor presentation. This includes filling your information on the cover page.•Students must mention question number clearly in their answer.•Late submission will NOT be accepted.•Avoid plagiarism, the work should be in your own words, copying from students or otherresources without proper referencing will result in ZERO marks. No exceptions.•All answered must be typed using Times New Roman (size 12, double-spaced) font. Nopictures containing text will be accepted and will be considered plagiarism).•Submissions without this cover page will NOT be accepted.Assignment 1 Question-Chapters: 1, 2, 3 & 4: – [5 Marks]Q1: Imagine a society that produces military goods and consumer goods, which we’ll call “guns”and “butter.”[2 Marks]A) Draw a production possibilities frontier for guns and butter. Using the concept ofopportunity cost, explain why it most likely has a bowed-out shape.B) Show a point that is impossible for the economy to achieve. Show a point that is feasiblebut inefficient.C) Imagine that the society has two political parties, called the Hawks (who want a strongmilitary) and the Doves (who want a smaller military). Show a point on your productionpossibilities frontier that the Hawks might choose and a point the Doves might choose.D) Imagine that an aggressive neighboring country reduces the size of its military. As aresult, both the Hawks and the Doves reduce their desired production of guns by the sameamount. Which party would get the bigger “peace dividend,” measured by the increase inbutter production? Explain.Q2: Canada and that each of these workers can produce either 2 cars or 30 bushels of wheat in ayear.[2 Marks]A) What is the opportunity cost of producing a car in Canada? What is the opportunity costof producing a bushel of wheat in Canada? Explain the relationship between theopportunity costs of the two goods.B) Draw Canada’s production possibilities frontier. If Canada chooses to consume 10 millioncars, how much wheat can it consume without trade? Label this point on the productionpossibilities frontier.C) Now suppose that the United States offers to buy 10 million cars from Canada inexchange for 20 bushels of wheat per car. If Canada continues to consume 10 millioncars, how much wheat does this deal allow Canada to consume? Label this point on yourdiagram. Should Canada accept the deal?Q3: Suppose the demand function for corn is Qd = 10 − 2p, and supply function is Qs = 3p − 5. Thegovernment is concerned that the market equilibrium price of corn is too low and would like toimplement a price support policy to protect the farmers. By implementing the price supportpolicy, the government sets a support price and purchases the extra supply at the support price.In this case, the government sets the support price ps = 4.[1 Mark](a) Calculate the original market equilibrium price and quantity in absence of the pricesupport policy.(b) At the support price ps = 4, find the quantity supplied by the farmers, the quantitydemanded by the market, and the quantity purchased by the government.Answer:1. A) A production possibilities frontier (PPF) is used to illustrate various combinations ofoutput of two products and in this case its butter and gun using the available technology andresources. The shape of the curve depends on the scarcity, choice, and tradeoffs available inthe economy. The curve below shows the production possibilities frontier tradeoff betweendevoting resources to butter and guns. If the government was to allocate all its resources toguns, it could produce at point H, though it would not have less resource to produce butter. Ifthe government allocates all its resources to butter, it could produce at point D. Productionefficiency shows that it is impossible for the government to produce more of one goodwithout decreasing the quantity produced of another product. Thus, the reason why the curveis bowed-out shaped…

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