Question 1: Consider a simple economy producing two goods: bicycle and apples. The economy's production possibility frontier is represented by the following table:

Bicycles (1000's per year)	Apples (1000's pounds per year)
0	60
1	50
2	30
3	0

1. Graph the PPF of this economy. What can you say about the shape and the slope of the PPF.
2. Explain the opportunity cost of producing Apples.
3. Suppose the economy is currently producing 2,000 bicycles and 30,000 pounds of apples, what is the opportunity cost of producing an additional 1,000 bicycles?
4. Can the economy produce 2,000 bicycles and 20,000 pounds of apples? What do you call this level of production?
5. In what situation the economy can produce 1,000 bicycles and 55,000 pounds of apples?

Question 2:Using a supply-and-demand graph and assuming competitive markets, show and explain the effect on equilibrium price and quantity of the following:

1. Increased graduations of physician assistants on the market of health care services.
2. An anti-smoking campaign reducing the smoking in the population on the market for hospital services.

Question 3:

A vending machine company sells soft drinks at $1.50 per bottles per week. At that price, the quantity demanded is 2000 bottles per week. In order to increase sales, the company decides to decrease the price to $1, and sales increase to 4000 bottles. Calculate price elasticity of demand.

Question 4:Given the following demand function:

110 3.3PX HIT500-HW2.doc x HB Computer and In X HB Harvard Business X G Case Analysis # nts/4726767 Pa Calculate the price elasticity for $1 change in price at initial price level $20. Question 5: Using the below diagram, calculate a) Total consumer expenditures b ) Total cost to sellers C ) Total consumers surplus d) Total Producers' surplus e) The sum of the consumers' and the producers' surplus 20 Demand Price Supply Consumers' Surplus P1 Producers' Surplus Cost to sellers Milk (1000's gallons) 2 HIT500-HW2 (1).docx