ECON 101 INTRODUCTION TO ECONOMICS 1

(Opportunity Cost) Congratulations on being a university student and having successfully completed the university entrance exam! Now that you have started your college education it is time to think of what this university education is worth for you. What are you giving up in order to complete your university studies? What is the opportunity cost of you coming to university? Discuss these ideas in a well-written two paragraph essay, at most 400 words. The essay should be type-written (i.e.: not hand-written but types using a computer), 12 fonts, and double spaced.

(Marginal Cost-Marginal Benefit) Thuy Anh runs a small flower shop in the town of Florabunda. She is debating whether she should extend her hours of operation. Thuy Anh figures that her sales revenue will depend on the number of extra hours the flower shop is open as shown in the table above. She would have to hire a worker for those extra hours at a wage rate of $16 per hour.
Extra Hours Open Total Revenue (dollars)
1 25
2 45
3 70
4 90
5 105
6 110
(a) What is Thuy Anh’s marginal benefit if she decides to stay open for an extra three hours instead of two hours?
(b) What is Thuy Anh’s marginal cost if she decides to stay open for an extra three hours instead of two hours?
(c) Using marginal analysis, by how many hours should Thuy Anh extend her flower shop’s hours of operations?
1

(PPF and Trade) Suppose the world consists of only two countries, Uganda and Argentina. Also, there are just two products that the countries can produce and that their consumers would want to consume, passion
fruit and meat. We’ll assume both countries have identical resources and that there is constant opportunity costs in both countries. The following table shows how much each country can produce of each product in
one day if they put all their resources and technology into that particular good. (For example, in one day Argentina can produce 10 tons of passion fruit if it puts all its resources into passion fruit production)

Argentina

Uganda
Passion Fruit 20 tons 48 tons
Meat 30 tons 30 tons
(a) Discuss which country has an absolute advantage in passion fruit production (1 sentence answer).
(b) Discuss which country has an absolute advantage in meat production (1 sentence answer).
(c) Discuss the comparative advantage of each country.
(d) Assume that the two countries do not trade with each other and each of them are forced to consume what they produce and not more. Assume that Argentinians want to consume 4 tons of passion fruit while Ugandans want to consume 16 tons of passion fruit. How many tons of meat are Argentinians and Ugandans consuming, respectively?
(e) Assume the two countries decide to trade with each other and they each specialize in their comparative advantage. Who will produce which good and how much?
(f) Discuss the gains from trade. Could both countries benefit from trade?
(g) Assume that the “price” of 1 ton of passion fruit is 1 ton of meat. Would this trade be beneficial to both countries? Discuss your answer.

Transportation costs are very high for villages in central Sub-Saharan Africa, since they are not connected to each other or any major city/port via paved roads or railroads. This means that most of the population lives on small farms and produce the goods they consume personally. The UN is considering providing aid to the Sub-Saharan African governments to build up infrastructure that includes paved roads and railways.
Convince the UN Chief Ant´onio Guterres that this money will be well spent and that African people will benefit in terms of economic well-being from these infrastructure investments. What do you think will happen to the incomes of the African individuals? What do you think will happen to their consumption bundle? Use the concept of comparative advantage in your answer.

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