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**00 that she could possibly spend on potatoes or
**

other items. If she feels that the first pound of potatoes is worth $1.50, the second pound is worth $1.14,

the third pound is worth $1.05, and all subsequent pounds are worth $0.30, how many pounds of potatoes

will she purchase? What if she only had $3 to spend? LO1

2. Pham can work as many or as few hours as she wants at the university bookstore for $9 per hour. But

due to her hectic schedule, she has just 18 hours per week that she can spend working at either the

bookstore or at other potential jobs. One potential job, at a café, will pay her $12 per hour for up to 7

hours per week. She has another job offer at a garage that will pay her $10 an hour for up to 5 hours per

week. And she has a potential job at a daycare center that will pay her $8.50 per hour for as many hours

as she can work. If her goal is to maximize the amount of money she can make each week, how many

hours will she work at the bookstore? LO1

3. Suppose you won $15 on a lottery ticket and decided to spend all the winnings on candy bars and bags

of peanuts. The price of candy bars is $.75 and the price of peanuts is $1.50.

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 more bag of peanuts? Do these opportunity costs rise,

fall, or remain constant as each additional unit of the product is purchased?

c. Does the budget line tell you which of the available combinations of candy bars and bags of peanuts to

buy?

d. Suppose that you had won $30 on your ticket, not $15. Show the $30 budget line in your diagram. Has

the number of available combinations increased or decreased?

4. Suppose that you are on a desert island and possess exactly 20 coconuts. Your neighbor, Friday, is a

fisherman, and he is willing to trade 2 fish for every 1 coconut that you are willing to give him. Another

neighbor, Kwame, is also a fisherman, and he is willing to trade 3 fish for every 1 coconut. LO4

a. On a single figure, draw budget lines for trading with Friday and for trading with Kwame. (Put

coconuts on the vertical axis.)

b. What is the slope of the budget line from trading with Friday?

c. What is the slope of the budget line from trading with Kwame?

d. Which budget line features a larger set of attainable combinations of coconuts and fish?

e. If you are going to trade coconuts for fish, would you rather trade with Friday or Kwame?

5. Below is a production possibilities table for consumer goods (automobiles) and capital goods

(forklifts):

a. Show these data graphically. Upon what specific assumptions is this production possibilities curve

based?

b. If the economy is at point C, what is the cost of one more automobile? Of one more forklift?

Which characteristic of the production possibilities curve reflects the law of increasing opportunity costs:

its shape or its length?

c. If the economy characterized by this production possibilities table and curve were producing 3

automobiles and 20 fork lifts, what could you conclude about its use of its available resources?

d. Is production at a point outside the production possibilities curve currently possible? Could a future

advance in technology allow production beyond the current production possibilities curve? Could

international trade allow a country to consume beyond its current production possibilities curve?

6.. Suppose the total demand for wheat and the total supply of wheat per month in the Ukrainian grain

market are as shown in the nearby table. Suppose that the government establishes a price ceiling of $3.70

for wheat. What might prompt the government to establish this price ceiling? Explain carefully the main

effects. Demonstrate your answer graphically. Next, suppose that the government establishes a price floor

of $4.60 for wheat. What will be the main effects of this price floor? Demonstrate your answer

graphically. LO5

7. Suppose there are three buyers of candy in a market: Tex, Dex, and Rex. The market demand and the

individual demands of Tex, Dex, and Rex for candy are given in the table below. LO1

a. Fill in the table for the missing values.

b. Which buyer demands the least at a price of $5? The most at a price of $7?

c. Which buyer’s quantity demanded increases the most when the price is lowered from $7 to $6?

d. Which direction would the market demand curve shift if Tex withdrew from the market? What if Dex

doubled his purchases at each possible price?

e. Suppose that at a price of $6, the total quantity demanded increases from 19 to 38. Is this a “change in

the quantity demanded” or a “change in demand”?

8. The figure below shows the supply curve for tennis balls, S1, for Drop Volley tennis, a producer of

tennis equipment. Use the figure and the table below to give your answers to the following questions.

a. Use the figure to fill in the quantity supplied on supply curve S1 for each price in the table below.

b. If production costs were to increase, the quantities supplied at each price would be as shown by the

third column of the table (“S2 Quantity Supplied”). Use that data to draw supply curve S2 on the same

graph as supply curve S1.

c. In the fourth column of the table, enter the amount by which the quantity supplied at each price changes

due to the increase in product costs. (Use positive numbers for increases and negative numbers for

decreases.)

d. Did the increase in production costs cause a “decrease in supply” or a “decrease in quantity supplied”?

9. Refer to the expanded table below

a. What is the equilibrium price? At what price is there neither a shortage nor a surplus? Fill in the

surplus-shortage column and use it to confirm your answers.

b. Graph the demand for wheat and the supply of wheat. Be sure to label the axes of your graph correctly.

Label equilibrium price P and equilibrium quantity Q.

c. How big is the surplus or shortage at $3.40? At $4.90? How big a surplus or shortage results if the

price is 60 cents higher than the equilibrium price? 30 cents lower than the equilibrium price?

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