1.The following is a production possibilities table for war goods and civiliangoods :

Type of production

Production alternatives

A

B

C

D

E

Automobile ( in millions )

0

2

4

6

8

Guided missiles( in thousand )

30

27

21

12

0

1. Shows the Production Possibilities, graphically. What do the points on the curve indicate?

How does the curve reflect the law of increasing opportunity cost? Explain

If the economy currently at point C, what is the cost of 1 million more automobiles in term of guided missiles?

Of 1000 more guided missiles in terms of automobiles?

1. Label point G inside the curve. What does indicate? Label point H outside the curve what does the point indicate?
2. Upon what the assumptions is the production possibilities curve based? What happens when each of these assumptions is released?
3. Suppose improvement occurs in the technology of producing guided missiles, but not the production of automobiles. Draw the new PP curve.

Now assume that a technological advance occurs in producing automobiles, but not in Guided missiles. Draw the new PP curve.

Finally, draw the new PP curve which reflects technological improvement in theproduction of both products.

2.Why in the producing goods in economy of the country, we used to decide based on :

- what to produce- how to produce and- for whom to produce( explain )

3.What is the differences between a changeandshiftingof :

a. Thedemands, andb. the supply.Explain your answer by using the graph

4.When the demand shifting to right, where supply does not change, the new equilibrium will be at higher price and larger quantity. Is this against the law of demand?

5.Why the slope of demand is downward slope (negative), and the supply slope is upward slope (negative).

6.Suppose the total demand for wheat and the total supply of wheat per month in Kansas city grain market are as flows:

Thousand of bushels demanded

Price Per bushel ($)

Thousands of Bushels Supplied

Surplus (+) or

Shortage (-)

85

80

75

70

65

60

3.40

3.70

4.00

4.30

4.60

4.90

72

73

75

77

79

81

-

-

-

-

-

-

1. What will be the market or equilibrium price? What is the equilibrium quality? Using the surplus-shotage column, explain why your answers are correct
2. Using the above data, graph the demand for wheat and the supply of wheat. Be sure to label the axes of your graph correctly. Label Equalibrium price "P" and Equilibrium quantity "Q"
3. Why will $ 3.40 not be the equilibrium price in this market? Why not $ 4.90 ? Surpluses drive prices up; shotages drive them down." Do you agree?
4. Now suppose that the government establishes a ceiling price of, say $ 3.70 for wheat. Explain carefully the effects of this ceiling price. Demonstrate your answer graphically. What might prompt government to establish a ceiling price?
5. Assume now that the government establishes a price floor of, say, $ 4.60 for wheat. Explain carefully the effects of this supported price. Demonstrate your answer graphically. What might prompt the government to establish this price support?
6. "Legally fixed price strip the price mechanism of its rationing function." Explain this statement in terms of your answers to 5d and 5e.

7.Given supply, what effect will each of the following have on the demand for, and the equilibrium price and quantity of, product B?

1. Product B becomes more fashionable.
2. The price of product C, a good substitute for B goes down.
3. Consumers anticipate declining price and falling incomes.
4. There is a rapid upsurge in population growth.

8.How will each of the following changes in demand and/or supply affect equilibrium price andEquilibrium quantity in a competitive market; that is, do price and quantityrise, fall, remain unchanged, or are the answers indeterminate, depending on the magnitudes of the shifts in supply and demand ? You should rely on a supply and demand diagram to verify answers.

a.Supply decreases and demand remains constant.

b.Demand decreases and supply remains constant

c.Supply increases and demand is constant

d.Demand increases and supply increases

e.Demand increases and supplyis constant

f.Supply increases and demand decreases

g.Demand increases and supply decreases

h.Demand decreases and supply decreases.