Name: Christen Brown
Problem Set 1 is to be completed by 11:59 p.m. (ET) on Monday of Module/Week 2.
Based on the information provided for the market for video games, answer the following questions.
Draw and properly label the demand and supply graphs (this means you must label the axes and any
lines you include on the graph).
What is the equilibrium price and quantity?
b.) PRICE: $45.00
Now, assume that a new government report claims that video game play stimulates the brain.
What will this do to the demand curve? Of the available list of things in the text that causes a change
in demand, which best fits here as the cause of the demand shift?
What will happen to the equilibrium price and quantity?
With claims that the video game is stimulating, the demand curve will shift to the right. Of all the
reasons for change in demand listed in our text, the one that best describes this situation is changes in
consumer tastes and preferences. This fits most appropriately because it describes changes due to new
information. In this situation with the video game, the government released new, positive information
to the consumers, which increased demand.
P: The price will increase.
Q: The equilibrium quantity will increase.
2. Based on the following information for the state of Montana,
a. Draw the Production Possibilities Curve.
b. Determine the opportunity costs for a move from A to B; B to C; and C to D.
OIL / barrels
WHEAT / bushels
b.) A to B: 500 barrels of oil for 10,000 bushels of wheat.
B to C: 2,000 barrels of oil for 10,000 bushels of wheat.
C to D: 2,500 barrels of oil for 5,000 bushels of wheat.
3. In the space provided you are to do a number of things:
a. Draw and properly label a demand and supply curve.
b. Indicate where the equilibrium Price and Quantities are located.
c. How do things change based on the following scenario?
The market for hybrid cars is changing. There are more providers but
due to bad publicity and poor performance, demand is falling.
Knowing this information, you need to first tell me,
and then show this in your graph
What is the market you are dealing with?
The market for Hybrid cars.
Which curve(s) change and based on the lists in the text of what causes demand and supply to
shift what are the causes of theses shifts?
The curves that changed are the change in demand and the change in quantity demanded.
From the lists in our text the causes of theses shifts are changes in consumer tastes and
preferences and number of consumers.
In what direction do they change?
The change in demand curve will shift to the left and the change in quantity demanded
What happens to the equilibrium price and quantity after these changes are put into effect? Do they go up,
down or stay the same?
P: The price will decrease.
Q: The quantity will decrease.
Using the following information for individuals and their willingness to pay for a bottle of ginger
ale, calculate the total consumer surplus at a market price of $5.
Maximum amount a buyer would
pay for ginger ale
Total consumer surplus: $10.00
Using the information below about willingness to supply ginger ale, calculate the total producer surplus at
a market price of $5.
Marginal cost of producing
Total producer surplus: $5.00
How do your answers change if the price falls to $2?
Total consumer surplus: $24.00
Total producer surplus: $0.00