This economics question tests your understanding of economic models and analysis. The step-by-step answer below applies the relevant framework and explains the reasoning.
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Here are the solutions to your questions. QUESTION 1 a) The economic term used to describe the government setting a price below the equilibrium price (K10.00) is a price ceiling. b) Fixing the price at K10.00 creates a shortage. At K10.00, the quantity demanded is 400 units, and the quantity supplied is 200 units. c) Step 1: Determine if there is a surplus or shortage at K30.00. At K30.00, the quantity demanded is 200 units, and the quantity supplied is 400 units. Since quantity supplied is greater than quantity demanded, there is a surplus. Step 2: Calculate the amount of surplus. Surplus = Quantity Supplied - Quantity Demanded Surplus = 400 units - 200 units = 200 units Step 3: Calculate the monetary value of the surplus. Monetary Value = Surplus Quantity × Price Monetary Value = 200 units × K30.00/unit = K6000.00 The monetary value of the surplus is K6000.00. QUESTION 2 A) Absolute Advantage theory: A country has an absolute advantage in producing a good if it can produce that good more efficiently (using fewer resources or producing more output with the same resources) than another country. Comparative Advantage theory: A country has a comparative advantage in producing a good if it can produce that good at a lower opportunity cost (giving up less of another good) than another country. B) a) Step 1: Compare production for oranges. PNG produces 450 oranges, Vanuatu produces 300 oranges. PNG produces more oranges. Step 2: Compare production for coffee. PNG produces 200 coffee, Vanuatu produces 150 coffee. PNG produces more coffee. PNG has an absolute advantage in the production of both oranges and coffee. b) From absolute theory point of view, which country should be specialized in producing: (i) Oranges: PNG (ii) Coffee: PNG d) From comparative advantage theory point of view, which country should be specialized in producing: Step 1: Calculate the opportunity cost for each country. For PNG: Opportunity cost of 1 Orange = 200 Coffee450 Oranges ≈ 0.44 Coffee Opportunity cost of 1 Coffee = 450 Oranges200 Coffee = 2.25 Oranges For Vanuatu: Opportunity cost of 1 Orange = 150 Coffee300 Oranges = 0.5 Coffee Opportunity cost of 1 Coffee = 300 Oranges150 Coffee = 2 Oranges Step 2: Compare opportunity costs to determine comparative advantage. (i) For Oranges: PNG's opportunity cost (0.44 Coffee) is lower than Vanuatu's (0.5 Coffee). So, PNG has a comparative advantage in oranges. (ii) For Coffee: Vanuatu's opportunity cost (2 Oranges) is lower than PNG's (2.25 Oranges). So, Vanuatu has a comparative advantage in coffee. (i) Oranges: PNG (ii) Coffee: Vanuatu Send me the next one 📸