CALCULATIONS & SHORT WRITTEN RESPONSES
INSTRUCTIONS
Undertake the necessary calculations and prepare short written responses for the following four questions. Answers for each question must not exceed 250 words.
Question 1 (5 marks)
Special Agent Fox Mulder has a budget of $400. He spends it on conspiracy theory magazines (good X) and UFO videos (good Y). Each magazine costs $40, and each UFO video costs $20.
(a) Write out and plot Fox Mulder’s budget constraint (2 points).
(b) What is Fox Mulder’s trade-off? How many UFO videos must he give up to purchase an additional conspiracy theory magazine? (1 point).
(c) Upon hearing of Mulder’s obsessive expenditure, his boss, Assistant Director Walter Skinner, cuts his budget to $200. Write out and plot Mulder’s new budget constraint. How has his budget constraint changed? (2 points).
Question 2 (5 marks)
You have exams in economics and statistics coming up and five hours available for studying. The table shows the trade-offs you face in allocating the time you will spend in studying each subject.
| HOURS SPENT STUDYING | EXAM SCORE | |||
| CHOICE | ECONOMICS | STATISTICS | ECONOMICS | STATISTICS |
| A | 5 | 0 | 95 | 70 |
| B | 4 | 1 | 93 | 78 |
| C | 3 | 2 | 90 | 84 |
| D | 2 | 3 | 86 | 88 |
| E | 1 | 4 | 81 | 90 |
| F | 0 | 5 | 75 | 91 |
(a) Use the data in the table to draw a production possibility frontier graph. Label your vertical axis ‘Score on economics exam’ and label your horizontal axis ‘Score on statistics exam’. Make sure you label the values where your production possibility frontier intersects the vertical and horizontal axes. (2 points).
(b) Label the points representing choice C and choice D. If you are at choice C, what is your opportunity cost of increasing your statistics score? (1 points)
(c) Under what circumstances would A be a sensible choice? (2 points).
Question 3 (5 marks)
Best friends Scott Baio and Willie Aames decide to open up a movie poster shop in downtown Los Angeles. The following relationships describe the supply and demand for movie posters:
Qd = 130,000 – 20,000P
Qs = -70,000 + 30,000P
Where Q is the quantity and P is the price of a movie poster in dollars.
(a) Complete the following table (4 points):
| Price | Qs | Qd | Qs – Qd | Surplus/Shortage |
| $6.00 | ||||
| $5.50 | ||||
| $4.50 | ||||
| $4.00 | ||||
| $3.50 | ||||
| $3.00 | ||||
| $2.50 |
(b) What is the equilibrium price? (1 point).
Question 4 (5 marks)
Gene Wilder’s demand curve for lambs-wool sweaters is:
Q = 3000 – 15P
(a) How many lambs-wool sweaters will be sold at $10? (1 point).
(b) At what price would 2,250 lambs-wool sweaters be sold? (1 point).
(c) What would be the total revenue at a price of $50? (1 point).
(d) What is the point elasticity at a price of $50? (2 points).