Download Coconuts Berries

Sample questions:
1.
Susie has the afternoon free. She prefers to go to the movies with a friend and spend $6.50 on a ticket and
$4.00 on popcorn. If her friend were not able to go to the movies with her, she would choose to study
Economics for three hours (which would raise her grade on her exam by 10 points) and order a pizza for $10.50.
Her 3rd best alternative is go shopping for a pair of sunglasses which also costs $10.50. Susie’s friend is able to
go to the movies with her. What is Susie’s opportunity cost of going to the movies?
ordering a pizza and 10 points on her exam grade due to studying
(Note $10.50 is not part of the opportunity cost)
2. Suppose that the quantity demanded and the quantity supplied of bicycles at different prices are given below.
Price
Quantity Supplied
Quantity Demanded
$50
2,000
8,000
100
3,000
7,500
150
4,000
7,000
200
5,000
6,500
250
6,000
6,000
300
7,000
5,500
a. What is the equilibrium quantity and price of bicycles exchanged without any government
intervention? 6,000=q*, $250=p*
b. Suppose the government has established a price ceiling of $100. What will the price and quantity of
bicycles demanded and supplied be? qd=7500 qs=3000, p=$100 What is happening as a result of this
price ceiling? A shortage of 4500 exists since only 3,000 bikes will be exchanged
c. Suppose the government has established a price ceiling of $300. What will the price and quantity of
bicycles demanded and supplied be? 6,000=q*=qd=qs, $250=p* What is happening as a result of this
price ceiling? the market stays at equilibrium since the ceiling is ineffective due to being above p*
d.
Explain what will happen if the price ceiling is abolished. Be specific. qd would decrease and qs
would increase as the p rises to $300 and equilibrium is reached.
3. Explain what would happen to the Supply or Demand and to the equilibrium P and Q in the personal desktop
computer industry if each of the following occurred:
a. new technology was invented to cheapen the production of PC’s S p q
b. the economy is booming and people’s incomes are rising (computers are normal goods) D p q
c. wages for computer manufacturers have decreased and at the same time the population doubles S D p? q
d. A consumer report is released which says owning a computer increases your child’s IQ scores by 10%. Dpq
e. The price of notebook computers falls D p q
4. Suppose the following is my production possibilities frontier for cooking toast and pancakes in one hour.
Pancakes
Toast
0
40
2
39
4
37
6
33
8
27
10
20
12
11
14
0
a. Graph my production possibilities frontier.
Pancakes
14
40
Toast
What can be said about the point 30 toast, 8 pancakes? Unattainable with current resources and technology
What can be said about the point 10 toast, 12 pancakes?
Inefficient
What happens to the Production Possibilities frontier if I get a new griddle that speeds up production of
pancakes?
Pancakes
14
40
Toast
b. What is the opportunity cost of the first pancake approximately? ½ piece toast
Of the first piece of toast? 2 pancakes
Does the law of increasing opportunity costs apply here? Yes
5. Western is trying to decide between 3 building projects that all will run about $1 million. Their first choice is to
build a Journalism building. The second choice is to build a new parking deck. The third choice is to build a new
arena. What is the opportunity cost of building the journalism building?
Forgoing a parking deck (the $1 million does not count in the cost since it is spent on both the
first and second options)
6. Suppose that in one hour Gilligan can gather the following quantities of coconuts or bunches of berries.
Coconuts
Berries
0
30
1
28
2
21
3
12
4
0
a. Draw his production possibilities frontier.
Coconuts 4
30 Berries
b. What is the opportunity cost of the 1st coconut? 2 berries
c. What can we say about the point where Gilligan gathers 2 coconuts and 14 bunches of berries? What
about a point where he would gather 2 coconuts and 20 bunches of berries? both points are inefficient
since they are inside of his ppf
d. What is happening to his opportunity cost as he gathers more and more coconuts? it is increasing
e. How would the PPF look different if instead of the above chart, Gilligan gave up 1 coconut for every 3
bunches of berries, no matter how many of each he gathers? How has his opportunity cost now
changed? the ppf would now be a straight line rather than a curved one indicating
constant opportunity cost of 3 berries for each coconut (or 1/3 coconut for each berry)
7. Explain what would happen to the Supply or Demand and to the equilibrium P and Q in the corvette industry if
each of the following occurred:
a. new technology was invented to cheapen the production of corvettes S p  q
b. the economy goes into recession and people’s incomes fall (corvettes are normal) D p q 
c. wages for corvette manufacturers increase and at the same time the population doubles doubles
S D p q?
d. a consumer report is released which says driving a corvette increases your risk of death in an automobile
accident D p q 
8. Give four reasons why GDP may not be a perfect indicator of a nation’s well being.
see class notes for reasons such as: doesn’t include distribution of incomes, doesn’t include
nonmarket activities, includes bads as well as goods, doesn’t measure environmental damage,
doesn’t include unreported incomes, says nothing about the amount of leisure time
9. The following are the values for Consumption, Investment, Imports, Exports, and Government
expenditures for the country of Strow in the year 2020 given in billions of dollars:
C= $8000
I=$1000
G=$3500
X=$600
IM=$200
a. What is the GDP in Strow? $12,900
b. What is the Real GDP in Strow if the GDP deflator is 150? ($12,900/150)*100=$8600
c. If the population of Strow is 40, what is the GDP per capita? ($12,900/40)=$322.50
10. Which of the following products are counted as part of GDP and under what category are they
counted?
a. a new home built this year I
b. a used home sold this year Not Counted
c. a mayor’s salary this year G
d. a Sweater produced in Turkey and sold in the US this year M&C or Not Counted
e. a Toyota produced in the US this year and sitting on a car lot in Florida I
f. monthly apartment rent C
g. My time spent cleaning my house Not Counted
h. The time a maid spends cleaning my house for pay C