# Problem Set 1## A. Suppose Venezuela produces only 2 goods: beef and oil. If it only produces beef, it can produce 300 million pounds. If it only produces oil, it can produce 50 million barrels. 1. **Put beef on the y-axis, and oil on the x-axis. Graph the production possibility frontier of Venezuela.**2. **What is the opportunity cost of a pound of beef and what is the opportunity cost of a barrel of oil?**3. **Derive the equation of the PPF line you just drew. What does the value of the slope mean intuitively?**## B. Suppose that in a work day, Colette can either make 80 croissants or 40 strudels, while Greta can make either 60 croissants or 20 strudels.1. **Graph Colette’s PPF. What’s Colette’s opportunity cost of producing strudels and producing croissants?**2. **Graph Greta’s PPF. What’s Greta’s opportunity cost of producing strudels and producing croissants?**3. **Who has absolute advantage in each pastry? Who has comparative advantage in each pastry? Explain.**4. **If each baker specialize in the pastry in which she has comparative advantage and trade with the other, what’s the range of price for each pastry that would make both bakers better off?**## C. Suppose a Chevrolet factory in Norwood, Ohio has 2000 worker hours each day. The factory can produce a Malibu (M) in 10 hours and a Silverado (S) in 20 hours.1. **Putting M on the y-axis and S on the x-axis, draw this Chevrolet factory’s production possibilities frontier in one day.**2. **Calculate the equation of the PPF line you just drew. What does the value of the slope mean intuitively?**## D. Suppose the demand curve for cars in former Czechoslovakia was characterized by the equation \( Q^D = 2000 - 40P \), and the supply curve \( Q^S = 20P - 400 \).1. **Graph Czechoslovakia’s demand and supply curves for cars. What is the market equilibrium price and quantity of cars?**2. **Suppose under a command economy before 1989, the communist government sets the price at **Transcription for Educational Use**---**3.** In 1989, the Velvet Revolution ended communist rule in Czechoslovakia. Suppose the restoration of democracy and market economy in Czechoslovakia in 1989 improved efficiency and decreased cost in production. Opening of trade also allows manufacturers like Škoda to grow bigger. What happens to the demand and/or supply curves? Draw the new demand or supply curve. What happens to the equilibrium price and quantity? Describe the forces that drive the market to the new equilibrium.**4.** In 1993, Czechoslovakia peacefully dissolved into the independent states of the Czech Republic and Slovakia. Suppose the Dissolution caused uncertainty and damaged consumer confidence. Consumers are now willing to purchase fewer cars. What happens to the demand and supply curves? Draw the new demand or supply curve. What happens to the equilibrium price and quantity? Describe the forces that drive the market to the new equilibrium.**E.** The F-150 pickup truck is the most profitable model for Ford and the best-selling vehicle of any kind in the United States. Suppose the demand and supply curves for the F-150 pickup trucks are given by \[ Q^D = 300 - 2P \quad \text{and} \quad Q^S = 4P - 60 \]1. **Graph the demand and supply curves. What is the market equilibrium price and quantity?**2. **Calculate consumer surplus, producer surplus, and total surplus.**3. In early February 2021, a global semiconductor chip shortage led to an increase in the price of these chips, which are extremely important components of new vehicles, for areas ranging from infotainment systems to more traditional parts such as power steering. What happens to the trucks’ demand and supply curves? What happens to the equilibrium price and quantity?4. In August 2022, Congress passed the Inflation Reduction Act, which offered tax breaks to individuals purchasing electric vehicles. Many consumers now prefer to buy electric cars over gas trucks due to the benefits. What kind of good are electric vehicles to gas trucks? What happens to gas trucks’ demand and supply curves? How does this shock affect the equilibrium price and quantity in this market?5. **What is the purpose of this new law? Has it achieved this purpose?**6. **What can Ford do in response to remain competitive?** ---Graphs and diagrams are not provided, but you are

Using the resources and technology that are now available, a graph that is usually referred to as…

Answered: A. Suppose Venezuela produces only 2…

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC