# ECON102 Glendale Community College Vacuums and Toasters Economy Problem Set

Problem Set 1
Due 9/25/19
1. There is an economy that produces two good: vacuums and toasters

vacuums

toasters

A

0

250

B

40

225

C

80

175

D

120

100

E

160

0

a) Draw the production possibilities frontier for vacuums and toasters.
b) Show a point F that is feasible but inefficient. Show a point G that is impossible to achieve. Show a point H that is both feasible and efficient.
c) At point C, what is the opportunity cost of producing 40 more vacuumsâ€™s?
d) What is the opportunity cost of moving production levels from point D to B?
e) Is there evidence of the Law of Diminishing Returns? How can you tell?
2. The market for milkshakes has the following demand and supply schedule:

Price (\$)

Quantity Demanded

Quantity Supplied

\$1.50

250

50

\$2.00

200

100

2.50

150

150

3.00

100

200

3.50

50

250

a. Graph the demand and supply curve. What is the equilibrium price and quantity?
b. The government sets a price floor at \$3.00, will we have a surplus or shortage? Of how much?
c. If the price of a milkshake rises from \$2.00 to \$2.50, calculate the price elasticity of demand. What does this elasticity mean?
d. A deadly virus kills a large population of cows, what may happen in the market for milkshakes? Show graphically and explain.