Questions:

• An Absolute advantage can be described as having the capacity, as a producer, to produce goods with the use of fewer inputs as compared to other producers (Black, Hashimzade and Myles, 2012). From the given information, Jenny has an absolute advantage, both in the production of necklaces and bracelets, as she can produce more of both, given the same amount of time, as compared to Mary.
• Opportunity cost is the value one places on the next best alternative one forgoes (Greenberg, Spiller, 2015). Jenny’s opportunity cost of producing one necklace is:

30/20 = 1.5

This means that if she produces 1 necklace, she forgoes 1.5 of bracelets that she could have produced. In the same way, for Mary, we get:

15/15 = 1

This is the opportunity cost of producing a necklace over a bracelet and since the two quantities are equal, the opportunity cost is 1.

The above diagram demonstrates the demand and supply graph for Boost juice. As we can see, the equilibrium price and quantity of drinks are $12 and 600, respectively. This is so, as the quantity demanded and supplied are equal at 600 and hence the graphs intersect and market is in equilibrium.

4)  If the drinks are priced at $4, the quantity demanded of drinks would be 1000, while the quantity supplied of drinks would be 400. As the quantity demanded exceeds quantity supplied, this indicates a shortage in the market. In this case, there would be shortage of 600 drinks in the market, as can be seen from the diagram, and hence Boost juice will not be able to meet the demands of the consumers. This indicates a disequilibrium in the market, as consumers are willing to pay more to satisfy the demand and suppliers have a room to increase price charged so that they are able to supply more in the market. Eventually, producers will increase supply in response to the demand, the price would increase till it reaches 12 and quantity will be balanced at 600.

5) As the price of electricity supplied by the electricity market increases, in response to that, the demand of electricity will go down and people will try and move towards alternate forms of electricity. Since Solar panels are an alternate source of energy, it will act as a substitute of traditional electricity and therefore in response to the decrease in demand of traditional electricity source, the demand for solar panels would increase. Thus, as can be seen in the diagram, the demand curve of the solar panel market will shift and move upwards from D-1 to D-2. Therefore, in response to that, the price will move up from P-1 to P-2, and the quantity demanded will also increase from Qd-1 to Qd-2. The supply will remain unchanged, and due to that the equilibrium, which was initially at E-1 will now shift to E-2.

• An Absolute advantage can be described as having the capacity, as a producer, to produce goods with the use of fewer inputs as compared to other producers (Black, Hashimzade and Myles, 2012). From the given information, Jenny has an absolute advantage, both in the production of necklaces and bracelets, as she can produce more of both, given the same amount of time, as compared to Mary.
• Opportunity cost is the value one places on the next best alternative one forgoes (Greenberg, Spiller, 2015). Jenny’s opportunity cost of producing one necklace is:

30/20 = 1.5

This means that if she produces 1 necklace, she forgoes 1.5 of bracelets that she could have produced. In the same way, for Mary, we get:

15/15 = 1

This is the opportunity cost of producing a necklace over a bracelet and since the two quantities are equal, the opportunity cost is 1.

3)     

The above diagram demonstrates the demand and supply graph for Boost juice. As we can see, the equilibrium price and quantity of drinks are $12 and 600, respectively. This is so, as the quantity demanded and supplied are equal at 600 and hence the graphs intersect and market is in equilibrium.

4)  If the drinks are priced at $4, the quantity demanded of drinks would be 1000, while the quantity supplied of drinks would be 400. As the quantity demanded exceeds quantity supplied, this indicates a shortage in the market. In this case, there would be shortage of 600 drinks in the market, as can be seen from the diagram, and hence Boost juice will not be able to meet the demands of the consumers. This indicates a disequilibrium in the market, as consumers are willing to pay more to satisfy the demand and suppliers have a room to increase price charged so that they are able to supply more in the market. Eventually, producers will increase supply in response to the demand, the price would increase till it reaches 12 and quantity will be balanced at 600.

5) As the price of electricity supplied by the electricity market increases, in response to that, the demand of electricity will go down and people will try and move towards alternate forms of electricity. Since Solar panels are an alternate source of energy, it will act as a substitute of traditional electricity and therefore in response to the decrease in demand of traditional electricity source, the demand for solar panels would increase. Thus, as can be seen in the diagram, the demand curve of the solar panel market will shift and move upwards from D-1 to D-2. Therefore, in response to that, the price will move up from P-1 to P-2, and the quantity demanded will also increase from Qd-1 to Qd-2. The supply will remain unchanged, and due to that the equilibrium, which was initially at E-1 will now shift to E-2.

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