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Economics
Mr. Haubner
Name:_______________
WP: Unit I
Word Problems: Chapter 1 & 2
1. Production Possibilities models and opportunity cost are foundations of economic thought.
i. Draw and label a production possibilities model and label it with three points as
A: underutilization, B: efficiency and C: unachievable.
ii. Demonstrate and explain the three reasons for a shift in the PPF.
iii. Lastly, explain and demonstrate the law of increasing costs on a production
possibilities model and how that compares to a model with a constant slope.
2. Use the following information to answer the given questions based on the concept of opportunity
cost.
Units of Food Produced
Food
Clothing
Haubnerland
8
24
Smithland
5
10
i.
Which country has a comparative advantage in the production of food?
ii.
Which country has a comparative advantage in the production of clothing?
iii.
Which country has a absolute advantage in the production in food and/or clothing?
iv.
Which country should produce food and trade for clothing and which country should
produce clothing and trade for food?
3. Use the following information to answer the following questions about comparative advantage and
opportunity cost.
Hours required to produce a single unit
Food
Clothing
Spokland
4
8
Kirland
3
9
i. Which country has a comparative advantage in the production of food?
ii. Which country has a comparative advantage in the production of clothing?
iii. Which country has an absolute advantage in the production in food and/or clothing?
iv. Which country should produce food and trade for clothing and which country should produce
clothing and trade for food?
4.
The circular flow model is a simple economic model which explains how our economy works.
Draw and label a circular flow model for our economy labeling all 16 points.
i. Explain all nine points of the model in detail.
ii. List three assumptions and flaws of the model.
Word Problems: Chapter 4
5. The law of demand states that as the price of an item increases, the quantity demanded at that price
decreases and vice versa.
i. First, draw and label a demand curve and explain the inverse relationship that
exists between price and quantity by using and increasing and decreasing price
examples.
ii. Second demonstrate and explain the difference between the market demand
curve and the individual demand curve.
iii. Third, list the five reasons for a shift in demand, and demonstrate the effects on
price and quantity. Be sure to include a supply curve as well.
iv. Explain and demonstrate the difference between a change in the quantity
demanded in part I and a change or shift in demand in part III.
6. Assume there is a perfectly competitive market for beef-steak; a normal good. Also, assume that
each of these scenarios is independent of the others. Also, explain the effects on price, quantity and
unemployment within the industry for all three examples.
i. Demonstrate and explain the effects of an increase in the incomes of consumers
on the market demand for beef-steak.
ii. Demonstrate and explain the effects on price, quantity, and unemployment in
the beef-steak industry with a release by the AMA stating that extensive
consumption of beef-steak leads to several types of cancer.
iii. Demonstrate and explain the effects on the market for beef-steak in terms of
price, quantity and unemployment if there were to be a significant decrease in
the price of the pork market.
Suppose there were to be a decrease in the price of the “salsa flavored” dog food market from $5.75
to $4.50 per bag, which resulted in the quantity demanded increasing from 1100 bags per month to
1600 bags per month.
i. Is this an example of an elastic or inelastic good?
ii. Did this increase the total revenue of the firms?
8. Assume the market for cigarettes were to experience a significant increase in prices from $4 per
pack to $6 per pack, and as a result there was a decrease in the number of packs sold from 12,000
packs to 10,000 packs per month.
i. Is this an example of an elastic or inelastic good?
ii. Did this increase the total revenue of the firms?
Word Problems: Chapter 5
9. The law of supply states that as the price of an item increases, the quantity supplied at that price
increases and vice versa.
i. First, draw and label a supply curve and explain the relationship that exists
between price and quantity with increasing and decreasing price examples.
ii. Second, demonstrate and explain the difference between the market supply
curve and the individual supply curve.
iii. Third, list the five reasons for a shift in supply and demonstrate its effects on
price and quantity.
iv. Explain the difference between a change or shift in supply and a change in the
quantity supplied.
Word Problems: Chapter 6
10. Disequilibrium is described in two different scenarios; surplus (excess supply) and shortage (excess
demand).
i. Demonstrate and explain a market with a shortage using terms such as Qs
and Qd.
ii. Demonstrate and explain how this market will find equilibrium.
iii. Demonstrate and explain a market with surplus using terms such as Qs and
Qd.
iv. Demonstrate and explain how this market will find equilibrium.
11. Rent control, as a political and economic issue is extremely debatable.
v. What are some of the reasons supporting the use of rent control on the housing
market?
vi. Using S & D analysis, does rent control serve as a price ceiling or as a price
floor and what is its purpose?
vii. Third, what are some real world implications/costs of rent-controlled housing?
viii. How is the amount of the surplus or shortage derived?
12. The minimum wage is another political and economic issue that carries secondary effects.
i. What are some reasons supporting the issue of maintaining and raising the
minimum wage?
ii. Using S & D analysis, does the minimum wage serve as a price ceiling or as a
price floor, and what is its purpose?
iii. What are some drawbacks of the increase in the minimum wage?
7.
13. Assume that you are analyzing the market demand for housing in the east bay area.
i. First, explain three reasons for shift in demand with respect to housing
ii. Using S & D analysis, demonstrate the effects on the housing market of the Bay
Area. Be sure to touch on price and quantity issues as a result of the change.
iii. Lastly, identify a possible substitute to the Bay Area housing market and explain
the effects of the higher Bay Area housing price on its market.
14. In 1973 and 1979, OPEC decided to cutback production oil.
i.
Using S & D analysis, demonstrate the effects of this change on the market for
oil. Also, be sure to explain how this affected the price level and output as a
result of the change.
ii.
Demonstrate and explain how this affected a complimentary product of oil
and gas. Be sure to explain and demonstrate the effects of this using S & D
analysis with references to price and quantity.