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ECO 210: Homework Assignment #1
Question 1. You go to the movies one evening instead of doing your economics assignment and practice
test. You get 70 percent on your next economics exam compared with the 85 percent that you normally
score. What is the opportunity cost of going to the movies? [Note: Just think about what you are going to
give up if you go to the movies.]
Question 2. You plan to go skiing next weekend. If you do, you will have to miss doing your usual weekend job that pays $100. You won’t be able study for 8 hours and you won’t be able to use your prepaid college meal plan. The cost of your travel and accommodations will be $350, the cost of renting skis is $60, and your food will cost $40. What is the opportunity cost of the weekend ski trip? [Note: Think about what you are going to give up if you go skiing.]
CHAPTER 3. DEMAND AND SUPPLY
Question 3. This question deals with demand and supply and refers you to the table below.
Quantity Demanded/ Month
Quantity Supplied/ Month
a. What is the equilibrium price and equilibrium quantity?
c. Suppose the price is currently at $5. What problem would exist in the economy? What would you expect to happen to price?
d. Suppose the price is currently $2. What problem exists in the economy? What would you expect to happen to price?
Question 4. Suppose we are analyzing the market for hot chocolate and at equilibrium. For each, identify the determinant of supply or demand that is involved, and also state whether there will be an increase or decrease in supply or demand. Finally, how would equilibrium price and quantity change with the shift in the supply or demand curve?
a. Winter starts and the weather turns sharply colder.
b. The price of tea, a substitute for hot chocolate, falls.
c. The price of cocoa beans decreases.
d. The price of whipped cream falls.
e. A better method of harvesting cocoa beans is introduced.
f. The Surgeon General of the U.S. announces that hot chocolate cures acne.
g. Protesting farmers dump millions of gallons of milk, causing the price of milk to rise.
h. Consumer income falls because of a recession and hot chocolate is considered a normal good.
Question 5. New cars are a normal good. Suppose that the economy enters a period of strong economic
expansion so that people’s income increases substantially. What happens to the equilibrium price and quantity of new cars?
Question 6. DVDs and videotapes are substitutes. What happens to the equilibrium price and quantity of videotapes when the price of a DVD falls because of an
increase in the supply of DVDs.
Question 7. Suppose we observe that the consumption of peanut butter increases at the same time its price rises. What must have happened in the market for peanut butter? Is the observation that the price rose and the quantity increased consistent with the law of demand? Why or why not?
Question 8. The price of a personal computer has continued to fall in the face of increasing demand.
Question 9. (not graded but this needs to be clear in your mind!) When you and a friend are studying the model of Demand and Supply, the friend says to you, “I really don’t understand the difference between a ‘shift in a curve’ and a ‘movement along’ a curve. Can you help me?” How would you explain the difference to your friend?