Suppose you won $15 on a lotto ticket at the local 7-Eleven and decided to spend all the winnings on candy bars and bags of peanuts. The price of candy bars is $0.75 and the price of peanuts is $1.50. LO4 c. What is the slope of the budget line? What is the opportunity cost of one more candy bar? Of one more bag of peanuts?
Suppose you won $15 on a lotto ticket at the local 7-Eleven and decided to spend all the winnings on candy bars and bags of peanuts. The price of candy bars is $0.75 and the price of peanuts is $1.50. LO4 c. What is the slope of the budget line? What is the opportunity cost of one more candy bar? Of one more bag of peanuts?
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1) Suppose your grandmother gave you $25 for your birthday and you decided to spend all of it on candy bars and bags of popcorn. The price of candy bars is $1.25 and price of a bag of peanuts is $3.75.
a) Construct a table showing the alternative combinations of the two products that are available.
b) Plot the data in your table as a budget line in a graph. What is the slope of the budget line? What is the opportunity cost of one more candy bar? Of one bag of peanuts?
c) How, in general, would you decide which of the available combinations of candy bars and bags of peanuts to buy?
2) With current technology, suppose a firm is producing 750 screwdrivers daily. Also assume that the least-cost combination of resources in producing those screwdrivers is 15 units of labor, 20 units of land, 4 units of capital, and 3 unit of entrepreneurial ability, selling at prices of $50, $45, $75, and $50, respectively. If the firm can sell these 750 screwdrivers at $2.50 per unit,
a) what is its total revenue?
b) what is its total cost?
c) what is its profit or loss?
d) will it continue to produce screwdrivers?
e) If this firmâs situation is typical for the other makers of screwdrivers, will resources flow toward or away from this product?
3) How will each of the following changes in demand and/or supply affect equilibrium price and equilibrium quantity in a competitive market; that is, do equilibirium price and quantity rise, fall , or are the answers indeterminate because they depend on the magnitudes of the shifts?
a)Supply decreases and demand is constant. Change in eqilibrium price chnage in eqilibrium quantity
b)Demand decreases and supply is constant.
c)Supply increases and demand is constant.
d)Demand increases and supply increases.
e)Demand decreases and supply decreases.
4)Zeke likes to go to music concerts. The number of times per year that he attends concerts depends on both the price of the concerts as well as Zekeâs income and the cost of other types of entertainmentâin particular, how much it costs to go see a movie instead of attending concerts. The three demand schedules in the $60,000 per year and movies cost $10 each. In scenario D2, Zeke's income is also $60,000 per year, but the price of seeing a movie rises to $12. And in scenario D3, Zeke's income goes up to $80,000 per year, while movies cost $12.
a)Using the data under D1 and D2, calculate the cross-elasticity of Zeke's demand for concerts at all three prices. (To do this, apply the midpoints approach to the cross-elasticity of demand.) Is the cross-elasticity the same at all three prices? Are movies and concerts substitute goods, complementary goods, or independent goods?
b)Using the data under D2 and D3, calculate the income elasticity of Zeke's demand for concerts at all three prices. (To do this, apply the midpoints approach to the income elasticity of demand.) Is the income elasticity the same at all three prices? Are concerts an inferior good?
| PRICE | D1 | D2 | D3 |
| 50 | 10 | 5 | 12 |
| 40 | 15 | 10 | 25 |
| 30 | 25 | 15 | 40 |
Income 60,000 60,000 80,000
Cost of revenue 10 12 12
5) On the basis of the three individual demand schedules below, and assuming these three people are the only ones in the society, determine (a) the market (a) the market demand schedule on the assumption that the good is a private good and (b) the collective demand schedule on the assumption that the good is a public good.
| P | Qd(D1) | Qd(D2) | Qd(d3) |
| 20 | 0 | 0 | 1 |
| 19 | 0 | 1 | 2 |
| 17 | 0 | 2 | 3 |
| 16 | 0 | 3 | 4 |
| 15 | 1 | 4 | 5 |
| 14 | 2 | 5 | 6 |
| 13 | 3 | 6 | 7 |
| 12 | 4 | 7 | 8 |
| 11 | 5 | 8 | 9 |
| 10 | 6 | 9 | 10 |
Problem
#1 ( Budget Lines) :
Suppose that Russ has budgeted $20 a month to buy candy bars, music downloads, or
some combination of each. If Russ buys only candy bars he can obtain 40 bars a month; if
he buys only downloads, he can buy 20 a month.
1. What is the price of a candy bar?
2. What is the price of a music download?
3. What is the opportunity cost of a music download?
4. What is the opportunity cost of a candy bar?
5. Would the opportunity cost of each good change if Russ decided to increase his
monthly budget to $30 for the two items?
Problem #2 ( Production Possibilities ):
Suppose that a nation's production possibilities can be represented by the table below:
Production Alternatives
| Product Alternatives | |||||
| Products | A | B | C | D | E |
| Food | 0 | 4 | 8 | 12 | 16 |
| Clothing | 20 | 18 | 14 | 8 | 0 |
Products A B C D E
Food 0 4 8 12 16
Clothing 20 18 14 8 0
1. What is the maximum amount of food this economy can produce? How much clothing
can it produce at this point?
2. If the economy is producing at alternative C, what is the cost of one more unit of
food?
3. If the economy is producing at alternative C, what is the cost of one more unit of
clothing?
4. Is this economy subject to the law of increasing opportunity costs? How can you tell?
5. Suppose the economy is currently producing 4 units of food and 16 units of clothing.
Is this economy producing efficiently?
