1. Pham can work as many or as few hours as she wants at the college bookstore for $9 per hour. But due to her hectic schedule, she has just 15 hours per week that she can spend working at either the bookstore or other potential jobs. One potential job, at a café, will pay her $12 per hour for up to 6 hours per week. She has another job offer at a garage that will pay her $10 an hour for up to 5 hours per week. And she has a potential job at a daycare center that will pay her $8.50 per hour for as many hours as she can work. If her goal is to maximize the amount of money she can make each week, how many hours will she work at the bookstore?

2. Suppose you are on a desert island and possess exactly 20 coconuts. Your neighbor, Friday, is a fisherman, and he is willing to trade 2 fish for every 1 coconut you are willing to give him. Another neighbor, Kwame, is also a fisherman, and is willing to trade 3 fish for every 1 coconut.

a. On a single figure, draw budget lines for trading with Friday and for trading with Kwame. (Put coconuts on the vertical axis.)

b. What is the slope of the budget line from trading with Friday?

c. What is the slope of the budget line from trading with Kwame?

d. Which budget line features a larger set of attainable combinations of coconuts and fish?

e. If you are going to trade coconuts for fish, would you rather trade with Friday or Kwame?

3. Because investment and capital goods are paid for with savings, higher savings rates reflect a decision to consume fewer goods for the present in order to be able to invest in more goods for the future. Households in China save 40 percent of their annual incomes each year, whereas U. S. households save less than 5 percent. At the same time, production possibilities are growing at roughly 9 percent per year in China but only about 3.5 percent per year in the United States. Use graphical analysis of “present goods” versus “future goods” to explain the difference between China’s growth rate and the U. S. growth rate.

4. With current technology, suppose a firm is producing 400 loaves of banana bread daily. Also assume that the least-cost combination of resources in producing those loaves is 5 units of labor, 7 units of land, 2 units of capital, and 1 unit of entrepreneurial ability, selling at prices of $40, $60, $60, and $20, respectively. If the firm can sell these 400 loaves at $2 per unit, what is its total revenue? Its total cost? Is it profit or loss? Will it continue to produce banana bread? If this firm’s situation is typical for the other makers of banana bread, will resources flow toward or away from this bakery good?