7/23/2019 Tutorial 022

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TUTORIAL 2:

1) Draw and explain a production possibilities frontier (PPF) for an economythat produces milk and cookies. What happens to this frontier if disease,e.. mad cow disease, kills half of the economy!s cow population"

#) $se the PPF to describe the idea of %e&ciency'.

) Draw a circular*ow diaram. +dentify the parts of the model thatcorrespond to the *ow of oods and serices and the *ow of dollars foreach of the followin actiities.a) -ira pays a storekeeper 1 for a /uart of milk.b) Farah earns 0.2 per hour workin at a 3F4.c) 5my spends 6 to see a moie at the -all.d) -ariam earns 12,222 from her 12 percent ownership of 7omb

-ariam +ndustry.

0) Popeye!s income declines, and as a result, he buys more spinach. +sspinach an inferior or a normal ood" What happens to Popeye!s demandcure for spinach"

) 5xplain each of the followin statements usin supply and demanddiarams.a) %When a cold snap hits Florida, the price of orane 8uice rises in

supermarkets throuhout the country.'b) %When the weather turns warm in 9ew 5nland eery summer, the

price of hotel rooms in 4aribbean resorts plummets.'

c) %When a war breaks out in the -iddle 5ast, the price of asoline rises,and the price of a used 4adillac falls.'

:) %;n increase in the demand for notebooks raises the /uantity ofnotebooks demanded but not the /uantity supplied.' +s this statementtrue or false" 5xplain.

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