ECON 1A – Macroeconomics ,The following table shows

Subject: Economics    / General Economics

ECON 1A: Macroeconomics Worksheet 1: ch1-3 NAME:

Q1 (ch1). The following table shows the relationship between price (P) and the quantity of gourmet coffee buyers want to buy at each given price.

Price per Cup

of Coffee (P) Quantity DemandedA

of Coffee (Qd)

$10 0 cups

8 10 cups

6 20cups

4 30cups

2 40 cups

a. Graph and briefly explain the relationship. Put Price on the vertical axis and Quantity Demanded on the horizontal axis. (2pts)

b. What is the slope of the line? Y- intercept? (1pts)

c. Construct the equation that represents this line. Predict the quantity demanded for coffee at $ 4.4. (2pts)

Q2(ch2). Dreamland’s production possibilities schedule is as follows:

POINT Butter (tons) Guns (units)

A 0 20

B 1 18

C 2 15

D 3 11

E 4 6

F 5 0

a. Draw the production possibilities frontier. Put butter on the horizontal axis and guns on the vertical axis.


b. If this economy is at point C, what is the opportunity cost of a ton of butter (marginal opportunity cost)? The opportunity cost of one more gun? (2pts)

c. Does the law of increasing opportunity cost hold in this country? If it does, show its evidence. (1pt)

d. Suppose that the war breaks out in Dreamland (assume that it does not affect the amount of resources). Before the war, Dreamland’s economy initially operated at E (4, 6). How should this economy adjust to the current war? What if the economy was initially on the alternative L (4, 4)? Briefly discuss. (2pts)

e. Suppose that a technological innovation in the production of gun is discovered. Assuming that the new technology does not affect the production of butter, illustrate (on the original graph) the effect of this new technology on the PPF. (1pt)

Q3 (ch3). Suppose the automobile industry is made up of three firms: GM, Ford, and Toyota companies. The following market demand and supply schedules are for big SUVs (sports utility vehicle).

Price Quantity Supplied in the market

Quantity demanded in the market

GM Ford Toyota

$20,000 25 30 20 170

25,000 30 40 25 160

30,000 35 50 30 150

35,000 40 60 35 135

40,000 45 70 40 120

a. Plot the supply and the demand curves for big SUVs. What are the equilibrium price and quantity of big SUVs? (2pts)

b. Why will $20,000 not be the equilibrium price in this market? Why not $40,000? Explain. (1pt)

c. Illustrate on your graph and discuss how a rise in the price of gasoline due to Hurricane Katrina would affect the big SUV market? (2pts)