Problem Sets
Problem
Set answers can be found here.
Mankiw, pp 16-17, Questions for
Review ("Q4R") # 2 & 3 and Problems and Applications
("P&A") # 6 & 14
1. Mankiw, pp 33-34, Q4R #4
and P&A #7
2. a. Construct
graphically the production possibilities frontier for the city of
|
|
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
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?
1. Mankiw,
p. 58, P&A # 4 - 6. (Read the Tiger Woods example if you're
struggling with #6.)
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, pp. 86 – 88,
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
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.
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, pp. 156 – 157,
P&A # 1 & 7
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 & 3, page 111.
5. Mankiw P&A # 8, page
111.
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 112.
1. Base: Mankiw P&A #2,
page 132, with some changes. . .
First (before
you do part a), draw the competitive 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, page
132 , 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, pages 132 – 133.
1. Mankiw, pg. 220, P&A # 3.
2. Mankiw P&A #5, page 220.
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.
1. Mankiw Q4R #2, page
285. Please try to think of an example that is not directly in the text
or lecture.
2. Mankiw P&A #2, page
286.
3. Mankiw P&A #5 , pages
286 – 287, 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 287. 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.)
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, page 309.
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 309.
1. Mankiw Q4R
#4 & 5, page 341.
2. Mankiw P&A #1, 9,12
& 16 pages 342 – 344.
1. Mankiw P&A #2, page
370.
1. Mankiw P&A #1 &
4, page 387.
1. Mankiw P&A #5
(except part d), page 370.
2. Mankiw P&A #8, page 371.
1. Mankiw P&A #3, 4, 6
& 9, p. 495.