Imagine that a country produces only three goods: apples, bananas, and carrots.

Question

Imagine that a country produces only three goods: apples, bananas, and carrots. The quantities produced and the prices of the three goods are listed below.

Imagine that a country produces only three goods: apples, bananas, and carrots. The quantities produced and the prices of the three goods are listed below. Quantities Produced Goods Apples Bananas Carrots Price $2.00 1.50 1.00 12 26 Instructions: Round your answers to 2 decimal places. a. What is this country's GDP? b. Suppose that a drought hits the country, causing the quantity of apples produced to fall to 5. Assuming that all prices remain constant, what is this country's new level of GDP? c. Assume, once again, that the quantities produced and the prices of the three goods are as listed in the table. Given this situation, carrot sellers decide that the price of carrots is too low and agree to raise the price of carrots. If GDP is $80.00, what will be the new price of carrots? $per carrot

Explanation / Answer

ANSWER:

A) GDP = quantity of apples * price of apples + quanity of bananas * price of bananas + quantity of carrots * price of carrots

gdp = 8 * 2 + 12 * 1.5 + 26 * 1 = 16 + 18 + 26 = 60

gdp is $60

B) GDP = quantity of apples * price of apples + quanity of bananas * price of bananas + quantity of carrots * price of carrots

gdp = 5 * 2 + 12 * 1.5 + 26 * 1 = 10 + 18 + 26 = 54

gdp is $54

C) GDP = quantity of apples * price of apples + quanity of bananas * price of bananas + quantity of carrots * price of carrots

let the price of carrots be x

80 = 8 * 2 + 12 * 1.5 + 26 * x

80 = 16 + 18 + 26x

80 = 34 + 26 x

80 - 34 = 26x

46 = 26 x

x = 46 / 26 = 1.7692

so the price of carrots is $1.77

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