Overview
BUS 724
MODULE 1
EXERCISE 1
Total Points = 5
Question 1 (1 point)
The table shows the quantities of corn and beef that a farm can produce in a year. Draw a graph of the farm’s PPF. Mark on the graph:
- An inefficient combination of corn and beef—label this point A.
- An unattainable combination of corn and beef—label this point B.
- An efficient combination of corn and beef—label this point C.
Question 2 (1.5 points)
Figure 3.3 shows Tom’s production possibilities and Figure 3.4 shows Abby’s production possibilities. Tom uses all his resources and produces 2 rackets and 20 balls an hour. Abby uses all her resources and produces 2 rackets and 40 balls an hour. What is Tom’s opportunity cost of producing a racket? What is Abby’s opportunity cost of a racket? Who has a comparative advantage in producing rackets? Who has a comparative advantage in producing balls?
Question 3 (1 point)
The table below shows the demand and supply schedules for running shoes. What is the market equilibrium? If the price is $70 a pair, describe the situation in the market. Explain how market equilibrium is restored.
Question 4 (1.5 points)
OPEC deadlocked on oil production hike oil prices exceeded the $100-a-barrel mark Wednesday after OPEC said it could not reach an agreement about raising crude production (Source: CNN Money, June 8, 2011). Suppose that OPEC members had agreed to increase production. Use a graph of the oil market to show the effect of this decision on the market equilibrium.