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ECON 101 Assignment

Question 1: Per hour, Kim can produce 40 pies OR 400 cakes, whilst Liam can produce 100 pies OR 200 cakes.

1. Calculate Kim’s and Liam’s opportunity costs of producing one pie.
2. If Kim and Liam spend 30 minutes of each hour producing pies and 30 minutes producing cakes, how many pies and cakes does each of them produce?
3. Who has a comparative advantage in producing pies? In cakes?
4. Draw Kim’s PPF and Liam’s PPF on separate graphs.
5. On your graphs, show the point at which each produces when they spend 30 minutes each hour on pies, and 30 minutes each hour on cakes
6. Show what each produces when they (completely) specialise in what each has a comparative advantage
7. When they specialise and trade, what are the total gain?
8. If Kim and Liam share the gains equally, what trade takes place between them?

Question 2: In response to the Gates Malaria Forum in October 2007, countries are debating the pros and cons of malaria eradication. Dr. Kochi of the World Health Organisation says that eradication is counter-productive. With enough money, he said, current tools like nets, medicines, and DDT could drive down malaria cases by 90%. “But eliminating the last 10% is a tremendous task and very expensive”, Dr Kochi said. “Even places like South Africa should think twice before taking this path”’. (New York Times, 4 March 2008.)

1. Is Dr. Kochi talking about production efficiency or allocative efficiency, or both?
2. Make a graph with the percentage of malaria cases eliminated on the x-axis and the marginal cost and marginal benefit of driving down malaria cases on the y-axis. On your graph:

• Draw a marginal cost curve that is consistent with Dr Kochi’s opinion.

• Draw a marginal benefit curve that is consistent with Dr Kochi’s opinion.

• Identify the efficient quantity of malaria eradication. Would this result in malaria eradication?