Microeconomic
Unit 2: Problem Set

Question 1

The economy of Scoob is capable of producing 2 goods only; cakes and buns. The table below shows the different combinations of the two goods that it can produce

Combinations

Cakes

Buns

a

12

0

10

35

b

7

63

4

84

c

0

100

I. Draw a PPF for the economy of Scoob with cakes on the Y axis and buns on the X axis

II. Label combination a,b and c on your diagram

III. If the economy of Scoob used all it resources to produce cakes how many cakes would it produce

IV. If the economy of Scoob used all its resources to produce buns, how many bus would it produce

V. If the economy of Scoob moves from combination a to combination b what is the opportunity cost of one additional bun

VI. If the economy moves from combination b to combination c what is the opportunity cost of 1 additional bun?

Question 2

Halima gets a $ 15 gift from her mother for her birthday she can spend it on chocolate bars and peanuts. The price of one chocolate bar is $1.50 and the price of a bag of peanuts is $ 0.75.

Complete the table below to show the possible combinations of the 2 goods that Halima can buy

A

B

C

D

E

F

Bags of peanuts

0

4

Chocolate bars

6

8

0

I. Draw Halima’s budget constraint on a graph with chocolate bars on the X axis and peanuts on the Y axis

II. What is the slope of the budget line

III. What is the opportunity cost of 1 additional bag of peanuts when Halima moves from combination E to F

IV. If Halima’s mother gave her $30 instead of $15 draw Halima’s new budget constraint and on your diagram show how many chocolate bars she would buy if she spent all her money on chocolate bars and how many bags of peanuts she would buy if she spent all her money on peanuts.