Summer 2020 – Individual Assignment 2 – (15%)

ECON252 – Macroeconomics

Name ID

Problem 1: (20 points)

Maria can read 20 pages of economics in an hour. She can also read 50 pages of sociology in an

hour. She spends 5 hours per day studying.

a) Draw Maria’s production possibilities frontier for reading economics and sociology.

b) What is Maria’s opportunity cost of reading 100 pages of sociology?

Problem 2: (40 points)

Bill and Hillary produce food and clothing. In an hour, Bill can produce 2 unit of food or 2 unit of clothing, while Hillary can produce 4 units of food or 6 units of clothing. They each work 10 hours a day.

a) Who has an absolute advantage in producing food? Who has an absolute advantage in

producing clothing? Explain.

b) Who has a comparative advantage in producing food? Who has a comparative

advantage in producing clothing? Explain.

c) Who should specialize in production of which product and why.

d) What is the gain from trade if before specialization both spent 50 % on food production

and 50 % of time on clothes production?

Problem 2: (40 points)

2010 (base year) 2017 2018

Product Quantity Price Quantity Price Quantity Price

Boots 1000 20 1200 25 1250 25

Burger 5000 3.5 5500 4 5500 4.5

Smartphones 1500 225 2000 250 2100 275

Bread 3000 1 3200 1 3400 1

Leather 600 8 700 10 800 12

Consider a small economy producing five goods. Note that bread is half used in burger

production and leather is totally used in boots production.

Answer the following questions:

1. Calculate nominal and real GDP of the economy in 2017 and 2018

2. Calculate the real GDP growth rate in 2018. Interpret.

3. Calculate GDP Deflator in 2017 and 2018.

4. Calculate inflation rate in 2018.