Problem Set 1: Principles of Economics PDF

Problem Set 1: Principles of Economics and the Production Possibility Curve Course: Microeconomics Degree in International Hotel Management, CETT Barcelona Question 1 A hotel manager who owns a small hotel is analyzing whether or not...

Problem Set 1: Principles of Economics and the Production Possibility Curve Course: Microeconomics Degree in International Hotel Management, CETT Barcelona Question 1 A hotel manager who owns a small hotel is analyzing whether or not to open the hotel for an extra day during the low season. The daily operational costs (electricity, water, cleaning, etc.) are €20; the costs of commuting from the manager's home to the hotel are €6, and the manager calculates that the net revenue (after deducting all other expenses) that he can earn on that extra day is €250. Finally, the manager decides NOT to open the hotel on that extra day. Indicate the correct answer: a) This individual values his leisure at more than €250. b) This individual values his leisure at €224. c) This individual values his leisure at, at least, €224. d) This individual does not behave rationally. Question 2 During COVID-19, many hotels in Spain were forced to close for long periods. The pandemic also caused a significant loss in the hospitality workforce due to layoffs and resignations, as well as a reduction in available capital for renovations and maintenance. How did the pandemic affect the production possibilities curve (PPC) of the hotel industry in Spain? Justify your answer. Question 3 Suppose the government passes a law requiring all employers to give employees 16 weeks of paid vacation each year. Prior to this law, employers were not legally required to give employees any paid vacation time. How would this affect the nation's production possibilities curve? Explain. Question 4 An economy produces two goods: cars and computers. The economy has limited resources (labor, capital, raw materials), and it faces a trade-off between producing these two goods. The current technology and resources allow the economy to produce a combination of both goods, represented by its Production Possibilities Curve (PPC). Show the following situations in your PPC: a) Full and efficient utilization of resources. b) Attainable and unattainable combinations of cars and computers. c) Growth of the labor force. d) Growth of technology in the car manufacturing industry. Question 5 Ceteris paribus, if North Korea increases the size of its military, then: a) its production of consumer goods will increase. b) its production of consumer goods will decrease. c) its production possibilities curve will shift inward. d) its production possibilities curve will shift outward. Question 6 The two most important exports from France are aircrafts and medicines. Imagine that France can only produce aircrafts and medicines. Producing 1 million aircrafts requires 500,000 workers, and to produce 1 million packaged medicines 1,500,000 workers are needed. The working population in France is 20 million workers. a) Represent the PPC for France b) Find the opportunity cost of one aircraft c) If unemployment increases because of the macroeconomic situation, only 18 million workers are actively working while producing 6 million packaged medicines. How many millions of aircrafts is the country producing? If unemployment is temporary, do you think the PPC has shifted? d) Find the PPC if now 5 million people that can work emigrate to France and join the labor force by actively working. e) Considering the initial 20 million workers, find the PPC if productivity for packaged medicines has now increased so that now to make 1 million packaged medicines, we need only 1 million workers. f) Is it true that when the productivity of packaged medicines changes but the one for aircrafts doesn’t, the opportunity cost of aircrafts is the same? Question 7 The table presented provides information about the Italian and Spanish economies and their productivity in two exporting industries: Wine and Olive Oil. ITALY SPAIN Wine (W) 30 min/unit 45 min/unit Olive oil (O) 2h/unit 1.5h/unit NOTE: Round your results to the nearest unit. a) Represent the PPC graphically for both economies. b) Figure out the opportunity cost for both economies. c) Discuss the comparative advantage of these products for both countries. d) If every country decides to produce where it has a comparative advantage, discuss the international price levels that allow them to trade.