Part II: Analyzing changes to the equilibrium

1. Draw the market demand and market supply in a market of an inferior good.

2. Identify graphically the equilibrium price and equilibrium quantity.

3. Explain and show graphically what would happen to the equilibrium if suddenly buyers became richer.

4. Explain and show graphically what would happen to the equilibrium if suddenly the number of sellers decreased.

5. Explain and show graphically what would happen to the equilibrium if suddenly buyers became richer and

the number of sellers decreased at the same time. What does your answer depend on?

Part III: The Production Possibilities Frontier

1. Draw the PPF of a country that only produces oranges and computers.

2. Show what happens to the PPF if a drought affected this country.

3. What happens with the set of feasible allocations?

4. What happens with the opportunity cost

(a) of computers in terms of oranges?

(b) of oranges in terms of computers?