Problem Set 1

1.

The table below list the different combinations of surfboards and tables that can be produced with a fixed quantity of resources

1. Production Possibilities Frontier

   	Surfboards	Tables
   A	0	140
   B	50	120
   C	90	90
   D	120	50
   E	140	0

   1. 1. Plot the production possibilities frontier
      2. Show a point X that is both feasible and efficient
      3. What is the opportunity cost of moving production from A to B?
      4. What is the opportunity cost of moving production from E to C?
      5. Does this PPF display the Law of Diminishing Returns? Explain

2. A drought destroys many coffee trees. Using a demand and supply diagram, illustrate and explain what happens to the market for coffee.

3. The demand and supply schedule for beef is illustrated in the table below

1. Graph the demand and supply of beef. Label all parts of the graph.
2. What is the equilibrium price and quantity?
3. If the price of beef were $5.00 per pound, would we have a shortage or surplus? How much is the excess?
4. If the price of beef were $7.00 per pound, would we have excess demand or excess supply? How much is the excess?
5. The American Medical Association puts out a report that beef is unhealthy. Show graphically and explain how this may affect the market for beef.

4. The demand and supply schedule for computer engineers is illustrated in the table below:

1. Graph the demand and supply for computer engineers. Label all parts of the graph
2. What is the equilibrium wage and quantity?
3. The US President passes legislation that restricts the entry of computer engineers from other countries. Show how this might affect the market for computer engineers.

Problem Set 1 Answers

1.Plot the production possibilities frontier

1. Show a point X that is both feasible and efficient
2. What is the opportunity cost of moving production from A to B?
3. What is the opportunity cost of moving production from E to C?
4. Does this PPF display the Law of Diminishing Returns? Explain