Question

1. Based on the following information for the state of Montana,

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.

CHOICE	OIL / barrels	WHEAT / bushels
A	15000	0
B	12000	10000
C	7500	20000
D	0	25000

a.)

b.) A to B: _____________       B to C: __________________   C to D: _________________

2. State whether the following issues are macroeconomic or microeconomic in nature.

a. A small country has decided to place tariffs on all products entering the country.

____________________

b. A musical company on Broadway is trying to decide if they should continue to put on a show.  

____________________

c. The GDP growth of Brazil has fallen to an all time low.

____________________

d. The city of Pittsburgh would like to increase property taxes.

____________________

e. A plumber is thinking about expanding his business despite his rising costs.

____________________

3. Based on the information provided for the market for Keurig coffee makers, answer the following questions.

PRICE	Q DEMANDED	Q SUPPLIED
$300	60	150
$250	70	130
$200	80	110
$150	90	90
$100	100	70

1. Draw and properly label the demand and supply graphs (this means you must label the axes and any lines you include on the graph).
2. What is the equilibrium price and quantity?

a.)

b.) PRICE: ______________________               QUANTITY: ______________________

Now, assume that a new government report claims that drinking hot beverages may cause cancer.

3. Which curve will shift, and in which direction will it shift?
4. What will happen to the equilibrium price and quantity?

c.)

d.) P: _______________________                       Q: _______________________

4. Assume you are a policymaker in Washington DC. Lobbyists for the dairy farmers of America have put pressure on their representatives to put a price control on milk. You have been assigned a position on a new committee to study the impact of such a control.

Your job is to:

1. Determine which type of price control would benefit the farmers, a price ceiling or a price floor.
2. Illustrate using a supply and demand graph what such an artificial price looks like.
3. Explain what the results of such a move are for the milk market. In other words, will there be a SHORTAGE, a SURPLUS, or neither created?
4. Finally, what are the impacts of this price control for those who wish to purchase milk? (In other words, what is the unintended consequence of this action? How will people deal with this change in the market?)

5. Calculate the elasticity of demand for the following products. Note whether the demand is elastic or inelastic.

	Change in price	Change in quantity
A new Cadillac	5% drop	10% increase
Grapes	12% rise	20% fall
Gasoline	6% falls	4% increase
Municipal water	15% increase	12% decrease
Toll on turnpike	10% rise	14% fall

Product              Elasticity                                       Elastic or Inelastic

Cadillac _________________                               ___________________

Grapes _________________                                  ___________________

Gasoline _________________                               ___________________

Municipal water _________________                               ___________________

Turnpike toll _________________                                     ___________________

Answer 1