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ECONOMICS AND QUANTITATIVE ANALYSIS (ONLINE)
CALCULATIONS & SHORT WRITTEN RESPONSES
INSTRUCTIONS
Undertake the necessary calculations and prepare short written responses for the following
four questions. Answers for each question must not exceed 250 words.
Question 1 (5 marks)
Special Agent Fox Mulder has a budget of $180. He spends it on conspiracy theory
magazines (good X) and UFO videos (good Y). Each magazine costs $30, and each UFO
video costs $20.
(a) Write out and plot Fox Mulder’s budget constraint (2 points).
(b) What is Fox Mulder’s trade-off? How many UFO videos must he give up to purchase an
additional conspiracy theory magazine? (1 point).
(c) Upon hearing of Mulder’s obsessive expenditure, his boss, Assistant Director Walter
Skinner, cuts his budget to $90. Write out and plot Mulder’s new budget constraint. How has
his budget constraint changed? (2 points).
Question 2 (5 marks)
The production possibility table for the making of Karaoke machines (good Y) and moviequality Chewbacca masks (good X) is shown in the table below:
| Combination | Chewbacca masks (thousands) | Karaoke machines (thousands) |
| A | 0 | 10 |
| B | 2 | 9 |
| C | 4 | 7 |
| D | 6 | 4 |
| E | 8 | 0 |
(a) Plot the production possibilities data with Karaoke machines on the Y-axis and
Chewbacca masks on the X-axis. What is the opportunity cost of the first 2,000 Chewbacca
masks? (2 points).
(b) Between which points is the opportunity cost per thousand Chewbacca masks the highest?
(1 point).
(c) At point D, what is the opportunity cost of 1,000 more Karaoke machines? What is the
opportunity cost of 2,000 more Karaoke machines? (2 points).
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Question 3 (5 marks)
Best friends Scott Baio and Willie Aames decide to open up a movie poster shop in
downtown Los Angeles. The following relationships describe the supply and demand for
movie posters:
Qd = 65,000 – 10,000P
Qs = -35,000 + 15,000P
Where Q is the quantity and P is the price of a movie poster in dollars.
(a) Complete the following table (4 points):
| Price | Qs | Qd | Qs – Qd | Surplus/Shortage |
| $6.00 | ||||
| $5.50 | ||||
| $4.50 | ||||
| $4.00 | ||||
| $3.50 | ||||
| $3.00 | ||||
| $2.50 |
(b) What is the equilibrium price? (1 point).
Question 4 (5 marks)
Gene Wilder’s demand curve for lambs-wool sweaters is:
Q = 2000 – 20P
(a) How many lambs-wool sweaters will be sold at $10? (1 point).
(b) At what price would 2,000 lambs-wool sweaters be sold? (1 point).
(c) What would be the total revenue at a price of $70? (1 point).
(d) What is the point elasticity at a price of $70? (2 points).
Hint – for (d) use the following formula:
