Problem Set 1

Name: ______________________________________________

Problem Set 1 is due by 11:59 p.m. (ET) on Monday of Module/Week 2.

1.      Based on the information provided below for the market for video games, answer the following questions:

a.)    Draw and properly label the demand and supply graphs (this means you must label the axes and any lines you include on the graph).

b.)    What is the equilibrium price and quantity?

PRICE: ______________________              QUANTITY: ______________________

Now, assume that a new government report claims that video game play stimulates the brain.

c.)    What will this do to the demand curve? Of the list of things in the text that cause a change in demand, which best fits here as the cause of the demand shift?

d.)   What will happen to the equilibrium price and quantity?

P: _______________________                      Q: _______________________

2.      Based on the information provided below for the state of Montana, answer the following questions:

a.)    Draw the Production Possibilities Curve.

b.)    Determine the opportunity costs for a move from A to B; B to C; and C to D.

A to B: _____________         B to C: __________________           C to D: _________________

3.      In the space provided below, do the following:

a.)    Draw and properly label a demand and supply curve.

b.)    Indicate where the equilibrium Price and Quantities are located.

c.)    How do things change based on the following scenario?

·         The market for hybrid cars is changing. There are more providers but due to bad publicity and poor performance, demand is falling.

Knowing this information, answer the following questions and then show the corresponding information in your graph:

a.)     

b.)     

c.)     

d.)    What is the market you are dealing with?

e.)     Which curve(s) change(s)? Based on the lists in the text of what causes demand and supply to shift, what are the causes of these shifts?

f.)     In what direction do they change?

g.)    What happens to the equilibrium price and quantity after these changes are put into effect? Do they go up, go down, or stay the same?

P: _______________________                Q: _______________________

4.      Mario has reached a crossroads in his life. He is trying to decide whether to change careers.  Currently, Mario makes pizzas, but he is considering entering a different line of work testing video games. Mario can either test 6 games or toss 12 pizzas in a day. Interestingly, Mario’s friend Luigi is in a similar predicament. Luigi can test 3 games or toss 2 pizzas during a day.

Mario’s opportunity cost of testing one game: ___________________________

(yes, you can test fractional games)

Luigi’s opportunity cost of testing one game: ___________________________

(yes, you can test fractional games)

Mario’s opportunity cost of tossing one pizza: ___________________________

(yes, you can have fractional pizzas)

Luigi’s opportunity cost of tossing one pizza: ___________________________

(yes, you can have fractional pizzas)

Who has an absolute advantage in testing games? ________________________

Who has the comparative advantage in testing games? _____________________

Who has the comparative advantage in making pizzas? _____________________