ECC1000 Study Guide - Quiz Guide: Externality, Market Failure, Rib Eye Steak
6 Jun 2018
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Exercise 5
The daily demand for rib-eye steak (aged black Angus from King Island) is given by Qd = 50 – (1/2)P while the daily supply is
given by Qs = (1/2)P. What are equilibrium price and quantity? If government levies $8 per steak, what are new equilibrium
prices and quantity?
Calculate the deadweight loss of the tax.
Trade and trade policies
• Comparative advantage as a source of gains from trade
• Know how to calculate opportunity costs and identify comparative advantage and the pattern of trade.
• Understand how trade can enlarge a country’s consumption possibilities beyond its production possibilities.
• Understand the welfare effects of export and import using demand-supply diagrams.
• Understand the welfare effects of import tariff (or quota) using demand-supply diagrams.
Exercise 6
Shangri-la is a two-worker economy with Jen and Brad. Jen can produce either 10 kilograms of cheese or 2 bottles of wine per
week, while Brad can produce 5 kilograms of cheese or 5 bottles of wine per week. Both of them work 40 weeks per year. How
much of each good is produced if each worker fully specialises according to comparative advantage?
Calculate opportunity costs for Jen and Brad.
Identify who has comparative advantage in what, and what each should specialise in.
