Exercise 1

1
Exercise 1

• The graph shows Freda's PPF. Freda currently
  produces 10 packets of fudge and no cookies. If
  Freda decides to
• produce 1 packet of cookies, her opportunity
  cost of the
• packet of cookies is ______ of fudge.

Sol 2
2
Exercise 2
The opportunity cost of a tonne of bread is
_______ at point A than at point B the
opportunity cost of a tonne of cake is _______ at
point B than at point A.
Sol less, less
3
Exercise 3
Mary currently produces at point A in the figure.
If she moves from point A to point C, her
opportunity cost of a brownie..
Sol remains the same
4
Exercise 4
An economy produces at point A on the PPF shown
in the figure. A drought reduces the amount of
wheat that can be produced and the economy moves
to point B. The opportunity cost of a unit of
machines _______.
Sol decreases, and opportunity cost of a unit of
wheat increases
5
Exercise 5
The graph shows the PPFs before and following the
invention of a wonder drug in Africa. PPF0 is the
initial production possibilities frontier, and
PPF1 is the new production possibilities
frontier. The invention of a wonder drug has
____________ the opportunity cost of health care
services and ___________ the opportunity cost of
other goods and services.
Sol decreased, increased
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Exercise 6
The graph shows Sarah's PPF and Edward's
PPF. Sarah's opportunity cost of producing 1
pair of rubber boots is 2 pairs of running
shoes. Edward's opportunity cost of producing 1
pair of running shoes is 2 pairs of rubber
boots. Sarah has a comparative advantage in
producing ----- and Edward has a comparative
advantage in producing ------
Sol Sarah running shoes and Ed rubber boots
7
Exercise 7
The graph shows Matilda's PPF (blue) and
Phillip's PPF (pink). Does Matilda have a
comparative advantage in the production of dolls?
Sol No!
8
Exercise 8
The graph shows the production possibilities
frontiers of Ann (pink), Bob (green), and Con
(blue) and the point at which each of them is
producing. Who has a comparative advantage in the
production of nectarines?
Sol both Bob and Ann
9
Exercise 9

• The population increases.
• You predict that the demand for MP3 players will
  _______.

Sol will increase (move to the right)
10
Exercise 10
If the demand curve for Discmans is the one shown
in the graph and if the price of Discmans falls
from 80 to 40, while all other influences on
buying plans are unchanged, the quantity of
Discmans demanded _______ from __________ to
____________
Sol increases from 4 to 12 mil.
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Exercise 11

• Mary graduates from university and income
  increases by 40000. Nothing else changes.
• She decreases the quantity of pizza that she buys
  and increases the quantity of winter vacations
  that she buys.
• For Mary, pizza is an __________good and winter
  vacations are an _____________good.

Sol pizza is inferior and vacations are normal
goods.
12
Exercise 12
Technological advance in the consumer electronics
industry enables robot assembly lines to replace
human assembly lines. The cost of producing
consumer electronics decreases. At the same time,
the wage rate paid to workers in the electronics
industry falls. You predict that _______.
Sol. The supply of fax machines will increase
13
Exercise 121

• If the price of haircuts is above the equilibrium
  price, there will be a _______ of haircut
  services and the price of haircut services will
  _______.

Sol excess supply, price will decrease
14
Exercise 14

• If the quantity demanded of roses decreases by 40
  percent when the price of roses rises by 50
  percent, what is the price elasticity of demand
  for roses?

Sol 40/50 (percentage change in quantity over
percentage change in price)
15
Exercise 15

• A percent increase in the price of a good has led
  to a percent decrease in the quantity demanded of
  that good. Is this demand elastic, inelastic or
  unit elastic?

Sol elastic
16
Exercise 16

• When the price of gasoline increases by 3 percent
  and the price of a bus ride remains unchanged,
  the quantity of Bus rides demanded increases by
  12 percent.
• Calculate the cross elasticity of demand of bus
  rides with respect to gasoline.

Sol 12/34, they are substitutes
17
Exercise 17

• When heavy rain ruined the banana crop in Central
  America, the price of bananas rose from 0.90 a
  pound to 1.10 a pound. Banana sellers sold fewer
  bananas, but their total revenue remained
  unchanged.
• What can we guess about the elasticity of demand?

Sol demand is unit elastic
18
Exercise 18

• Suppose that the price of apples fell from 96 a
  crate to 64. A typical apple farmer would have
  supplied 1200 crates a day at 96 a crate, but at
  64 would supply 400 crates a day.
• What is the price elasticity of supply?

Sol 2.5
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Exercise 19
In the graph, consumer surplus equals 10. True
or false?
Sol false, it is 20
20
Exercise 20
Is the consumer surplus on the 6th fruit cake
consumed less than the consumer surplus on the
3rd fruit cake Consumed?
Sol yes
21
Exercise 21
The graph shows the supply curve of ice cream
cones and the market price of ice cream cones at
price 3. What is the producer surplus? What
will be the chance in producer surplus if price
changes to 3.5?
Sol at 3 PS20, and increases in 11.25 when
price increases 0.5
22
Exercise 22
The graph shows the supply curve of sleeping bags
and the market price of a sleeping bag. The
total cost of producing is 30 sleeping bags is
___ Total revenue is ______ Producer surplus
is_____
Sol 900, 1200, 300
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Other recommended problems(from the study guide)

• Ch. 1
• Pg. 6, no. 2
• Pg. 6, no. 5
• Ch. 1 Appendix
• Pg. 15, no. 11
• Pg. 15, nos. 12, 13
• Pg. 16, nos. 21, 22
• Pg. 17, no. 25

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And even more recommended problems (again from
the study guide)

• Ch. 2
• Pg. 30, no. 2
• Pg. 31, nos. 4, 7
• Ch. 3
• Pg. 52, nos. 8 (except part e(iv)), 9 (e, using
  information given in previous parts)
• Ch. 4
• Pg. 68, nos. 7, 8