ECON 213 quiz 1 solution

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

PRICE

Q DEMANDED

Q SUPPLIED

$50

5

9

$45

7

7

$40

9

5

$35

11

3

$30

13

1

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?

a.)    (on attached graph paper)

b.) PRICE: _____$45_________                    QUANTITY: _____7_____________

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 available list of things in the text that causes 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?

c.)    The demand curve will shift to the right; changes in consumer tastes and preferences.

d.)    P: __Increase___________                       Q: _______Decrease; will be harder to find________

2.      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

5000

0

B

4500

10000

C

2500

20000

D

0

25000

a.)    (on attached graph paper)

b.)
A to B: The opportunity cost of 1 wheat is .15 oil.
             The opportunity cost of 1 oil is 6.667 wheat.

B to C: The opportunity cost of 1 wheat is .2 oil.
            The opportunity cost of 1 oil is 5 wheat.

C to D: The opportunity cost of 1 wheat is .5 oil.
            The opportunity cost of 1 oil is 2 wheat.

3.      In the space provided you are to do a number of things:

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, you need to first tell me, and then show this in your graph:

1.)    What is the market you are dealing with? A narrow market that is decreasing in demand while supply maintains.

2.)    Which curve(s) change and based on the lists in the text of what causes demand and supply to shift what are the causes of theses shifts? The demand curve changes; a decrease in demand.

3.)    In what direction do they change? Left

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

P: ______down____________                        Q: _______stays the same_______

4.      Using the following information for individuals and their willingness to pay for a bottle of ginger ale, calculate the total consumer surplus at a market price of $5.

Maximum amount a buyer would pay for ginger ale

Scott

$10

Dennis

$4

Greg

$8

Dave

$7

Mike

$5

$5 market price:

Scott - $5

Dennis - $0

Greg - $3

Dave - $2

Mike - $0

$2 market price:

Scott - $8

Dennis - $2

Greg - $6

Dave - $5

Mike - $3

Using the information below about willingness to supply ginger ale, calculate the total producer surplus at a market price of $5.

Marginal cost of producing ginger ale

Gene

$6

Brandon

$3

Matt

$2

Cooper

$11

Jed

$5

$5 Market Price:

Gene - $0

Brandon - $2

Matt - $3

Cooper - $0

Jed - $0

$2 Market Price

Gene - $4

Brandon - $1

Matt - $0

Cooper - $9

Jed - $3

How do your answers change if the price falls to $2?Consumer surplus and producer surplus both rise.