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Saudi Electronic University Microeconomics Problem Solving Question

Saudi Electronic University Microeconomics Problem Solving Question

Question Description

Problem 1

Bill can produce either tables or chairs. Bill can work up to 10 hours a day. His production possibilities are given in the table below:















1) Construct the production possibilities frontier (PPF) for Bill. Put tables on the Horizontal axis and chairs on the vertical axis.

2) What is Bill’s opportunity cost of producing one additional table?

3) What is Bill’s opportunity cost of producing one additional chair?

4) Currently Bill is producing 20 tables and 40 chairs.

a) Is this allocation of resources efficient? Why?

b) Show this allocation on the graph and advise Bill how he can be more efficient.

Problem 2

Suppose the market for corn is given by the following equations for supply and demand:

QS = 2p − 2

QD = 13 − p

where Q is the quantity in millions of bushels per year and p is the price.

1) Calculate the equilibrium price and quantity.

2) Sketch the supply and demand curves on a graph indicating the equilibrium quantity and price.

3) Calculate the price-elasticity of demand and supply at the equilibrium price/quantity.

4) The government judges the market price is under expectations and announces a price floor equal to $7 per bushel.

a) Would there be a surplus or a shortage?

b) What would be the quantity of excess supply or demand that results?

c) Use the graph to show you results.

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