Supply and Demand

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5. Any questions about the Assignment, or format questions, should be directed to your course instructor.

Assignment

In this Assignment, you will demonstrate your understanding of the Production Possibility model, marginal opportunity costs, and the differences in marginal opportunity costs. Additionally, you will demonstrate a clear understanding of the crucial concept of supply and demand, and the impact on the original group caused by a change in demand.

In this Assignment, you will be assessed on the following outcome:

AB224-1: Examine how various supply and demand scenarios affect the way prices and quantities are set by market interactions in perfectly competitive markets.

Questions

1. In ancient days a tribe of natives on the mythical continent of Atlantis was able to produce two commodities to eat. They could harvest fish from the sea and they could grow a form of wild oats. Table 1.a. and Graph 1.a. both show the maximum annual output combinations of fish and wild oats that could be produced by the natives of Atlantis.

a. Could the Atlantis tribe have produced 800 bushels of wild oats and 5,000 kilograms of fish at the same time? Explain your answer. Where would this point lie relative to the production possibility frontier?

b. Using Table 1.a., what would have been the marginal opportunity cost of increasing the annual output of wild oats by 200 bushels, from 300 bushels up to 500 bushels?

c. Using Table 1.a., what would have been the marginal opportunity cost of increasing the annual output of wild oats by 200 bushels, from 625 bushels up to 825 bushels?

d. Why are the marginal opportunity costs for two similar batches of 200 bushels of wild oats not the same? Explain. What does this difference imply about the shape of the Atlantis tribe’s production possibility frontier curve?

2. Suppose that the supply schedule of Brazilian Coffee beans is as follows:

Suppose that Brazilian Coffee beans can be sold only in Brazil. The domestic Brazilian demand schedule for Brazilian Coffee beans is as follows:

1. Below is the graph of the domestic Supply and Demand (Graph 2.a.) for Brazilian Coffee beans. From the supply and demand schedules above, what are the equilibrium price and quantity of Brazilian Coffee beans?

Now suppose that Brazilian Coffee beans can also be sold in Canada. The Canadian demand schedule for Brazilian Coffee beans is as follows:

1. Complete the following table by inserting the total Brazilian Coffee beans demanded by both the Brazilians and Canadians at each price (the combined (total) demand schedule for Brazilian Coffee beans).

Below is the new Supply and Demand graph (Graph 2.b.) that illustrates the equilibrium price and quantity of Brazilian Coffee beans.

1. From the supply schedule and the combined Canadian and Brazilian demand schedule, what will be the new price at which Brazilian coffee growers can sell Brazilian Coffee beans?

1. With the Brazilian coffee growers selling to both the Canadians and the Brazilians, what price will be paid by Brazilian consumers?

1. With the Brazilian coffee growers selling to both the Canadians and the Brazilians, what will be the quantity consumed by Brazilian consumers?

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References:

Unit 3 Assignment: Supply and Demand Grading Rubric

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