Problem Sets
Chapter 1
Chapter 11
Chapter 2
Chapter 13
Chapter 3
Chapter 14
Chapter 4
Chapter 15
Chapter 7
Chapter 16
Chapter 5
Chapter 17
Chapter 6
Game Theory
Chapter 10
Chapter 19

Problem Set answers can be found here.


Chapter 1 

Mankiw, pp 16-17, Questions for Review ("Q4R") # 2 & 3 and Problems and Applications ("P&A") # 6 & 14

Answers



Chapter 2 

1.  Mankiw, pp 34-35, Q4R #4 and P&A #7

2.  a.  Construct graphically the production possibilities frontier for the city of Detroit, using the data given in the following table:

Detroit's Production Possibilities in 2001

Paintings
Automobiles (Thousands)
75
0
60
6
45
11
30
15
15
18
0
20
b.  Relate the concept of opportunity cost to the PPF that you just drew.
c.  Show on your graph points which are efficient (A), inefficient (B) and unattainable (C).  Describe in words what such points mean.
d.  What would happen to Detroit's PPF if automobile production technology improved next year?  Show this on your graph.

3.  (from the Study Guide).  The following table represents Joe's demand for cups of gourmet coffee.  Use this information to answer the questions found below. 

Price per cup of coffee
Quantity demanded of coffee
$5
2 cups
4
4
3
6
2
8
1
10
a.  Plot and connect the points from the table on a set of axes with "Price of coffee" on the y-axis and "Quantity demanded of coffee" on the x-axis.
b.  What is the slope of Joe's demand curve for coffee in the price range of $5 and $4?
c.  What is the slope of Joe's demand curve for coffee in the price range of $2 and $1?
d.  Are the price of coffee and Joe's quantity demanded of coffee positively correlated or negatively correlated?  How can you tell?
e.  If the price of coffee moves from $2 per cup to $4 per cup, what happens to the quantity demanded?  Is this a movement along a curve or a shift in the curve?
 f.  Suppose Joe's income doubles from $20,000 to $40,000 per year.  Now the following ordered pairs describe Joe's demand for gourmet coffee.  Plot these ordered pairs on the same graph that you used in part a. 
Price per cup of coffee
Quantity demanded of coffee
$5
4 cups
4
6
3
8
2
10
1
12
g.  Did the doubling of Joe's income cause a movement along his demand curve or a shift in his demand curve?  Why?

Answers



Chapter 3

1.  Mankiw P&A # 4 - 6.  (Read the Tiger Woods example if you're struggling with #6.)

Answers


Chapter 4 

1.  Show how the following demand curves are likely to shift in response to the indicated changes:
    a.  The effect of a drought on the demand curve for umbrellas.
    b.  The effect of higer popcorn prices on the demand curve for movie tickets.
    c.  The effect of an increase in the price of tea on the demand curve for coffee.
    d.  The effect of an increase in consumer income on the demand curve for computers.
    e.  The effect of an increase in consumer income on the demand for Ramen noodles.

2.  Mankiw P&A # 1 (for part c you will need two separate graphs--one for gasoline and another for used Cadillacs), 3, 6, 12 & 9 (do #9 after  #12)

3.  Continuing with Mankiw P&A #9 (the market for pizza), for each of the events listed below, identify whether the demand or supply curve is affected (assuming all other things were to remain constant) and show the shifts graphically.  State whether the equilibrium price increase or decreases, and whether the equilibrium quantity increases or decreases.
    a.  the price of cheeseburgers falls.
    b.  the price of mozarella increases.
    c.  consumers' incomes rise.
    d.  new automated pizza-making technology is introduced.

Answers


Chapter 7 

1.  Which gives you greater total utility, 12 gallons of water per day or 20 gallons per day?  Why?
2.  Which gives you greater marginal utility, 12 gallons of water per day or 20 gallons per day?  Why?

3.  Mankiw P&A # 1 & 7

Answers


Chapter 5 

1.  a.  Describe the price elasticity of demand in words.
    b.  What are some goods which have elastic demand curves?  (Be creative!  Please do not use examples from class or the text.)
    c.  What are some goods which have inelastic demand curves?  (Again, be creative!)
    d.  Explain in words why elastic demand curves are flat and inelastic demand curves are steep.

2.  If the price elasticity of demand for a good is elastic, how should its price be changed in order to increase total revenue?  Explain.  (You might find that a graph could help you, but please also use words to go along with the graph.)

3 & 4.  Mankiw P&A #1 & 3a, page 115.

5.  Mankiw P&A # 8, page 115.

6. If comparing the elasticity of supply of lawnmowers, would you expect it to be larger over the span of one week in the summer, or over the span of one year?  Why?

7.  Mankiw P&A # 11, page 116.

Answers


Chapter 6

1. Base:  Mankiw P&A #2, page 136, with some changes. . .

First (before you do part a), draw the competative equilibrium for the market for cheese, including the supply and demand curves, as well as the market price and equilibrium quantity.

Shade in and label the consumer and producer surplus.  Is there any deadweight loss?  Explain.

(Do part a)

Add the following to part a:  Shade in and label the consumer surplus and producer surplus after the price floor.  Is there any deadweight loss?  If so, shade in and clearly label this region as well.

(do part b, do NOT do part c)
 

2.  Mankiw P&A #4, pages 136-137 , with the following changes. . .

For BOTH parts a and b (should be done seperately):  shade in and clearly label the consumer and producer surplus, the tax revenue and deadweight losses if there are any.

At the end:  Has total welfare increased, decreased or remained constant after the tax was imposed?  How can you tell?

3. Mankiw P&A #6, page 137.

Answers


Chapter 10

1.  Give an example of each of the following (but not a class or text example!)
    a.  negative production externality
    b.  positive production externality
    c.  negative consumption externality
    d.  positive consumption externality

2. Mankiw P&A # 2, pp 222-223.

3. Mankiw P&A #4, page 223.

Answers


Chapter 11

1.a.  Try to give an example of a public good that was not discussed in the class or the text.  Explain why additional users do not deplete it and why it is difficult to exclude some people from using it.

b.  Try to give an example of a common resource that was not discussed in the class or the text.   Explain how additional users do diminish others' use and why it is difficult to exclude people from using it.

2.  Mankiw P&A #2 & 3, page 241.

Answers


Chapter 13

1.  Mankiw Q4R #2, page 287.  Please try to think of an example that is not directly in the text or lecture.

2.  Mankiw P&A #2, page 287.

3.  Mankiw P&A #5 , page 288, with the following additions.

Graph the Average Total Cost and Marginal Cost curves for Nimbus.

When you draw MC, you should plot the point between the two numbers.  For example, if the marginal cost going from 5 to 6 workers is 17, then plot this point as x = 5.5 (between 5 and 6) and y = 17.

Does the MC curve cross the ATC curve at the minimum of the ATC curve?

4.  Mankiw P&A #9, page 288.  Also calculate the Total Cost (you'll need it to do the ATC, but please report it too) and the Marginal Cost.

Graph ATC, AFC, AVC and MC on the same set of axes.  (The same warning about MC goes for this graph too.)

Answers


Chapter 14 

1.  What are the characteristics of Perfect Competition?  Which of the following drinks do you think is best  described by these characteristics?  Why aren't the others?

a.  tap water
b.  bottled water
c.  cola
d.  beer

2.  Mankiw P&A #6, pages 312-313.

3.  For each of the following scenarios, draw a separate diagram that includes the following:

a.  The short-run equilibrium of a perfectly competative firm that is making a positiveprofit.


b.  The short-run equilibrium of a perfectly competative firm that is making a negative profit.
c.  The short-run equilibrium of a perfectly competative firm that should shut down.
d.  Using these three graphs, above what price level will the firm always make a positive profit?  Above what price level should the firm stay in business rather than shut down?  Why?
 

4.  Explain why, in the long run, positive profits are driven to zero for perfectly competitive firms.  Show this process graphically, using graphs for both the market and the firm.  Which characteristics of perfect competition is reponsible for zero profits in the long run?

5.  Mankiw P&A #3, page 312.

Answers


Chapter 15 

1.  Mankiw Q4R #4 & 5, page 344.

2.  Mankiw P&A #1, 9,12 & 16 pages 344-347.

Answers


Chapter 16

1.  Mankiw P&A #2, page 373.

Answers


Chapter 17

1.  Mankiw P&A #1 & 4, page 392.

Answers


Game Theory

1.  Mankiw P&A #5  (except part d), page 373.

2. Mankiw P&A #8, page 374

Answers