Econ 51 Assignment 1 – Due September 13, 2023
1. Jane is deciding whether to go to school for 8 weeks next summer. The cost of tuition and
textbooks is $1,700 and housing and other expenses will cost her $600. If she does not go to
school, she will live in her parents' house for free and they will cover her food and other
expenses for her. Also, if Jane does not go to summer school she could work fulltime. But the
best job she can get pays only $600 per week, and Jane would only agree to give up her free time
for no less than $750 per week. However, if she goes to summer school, she'll have to spend 40
hours a week attending classes and studying.
a) What will the summer school cost Jane in terms of money spent?
b) What are the opportunity costs of going to summer school that Jane does not pay explicitly?
Explain.
c) What is Jane's total economic cost of going to school this summer? Explain.
2. Using supply-and-demand diagrams show and explain the effects of the following events on
the price of external hard drives and the quantity of external hard drives sold. For each event,
identify which of the determinants of demand or supply is affected, how it influences demand or
supply, and what happens to the equilibrium price and quantity.
a) The price of portable pen drives with large storage capacity falls.
b) Workers who make external hard drives get a pay raise.
c) Producers introduce new cost-saving technologies in their hard drive production plants.
d) Due to repeated security breaches, people lose trust in cloud storage services such as
Dropbox or Box.
3. A market research team has come up with the demand and supply schedules for gasoline in
Motorville in the table below. Use these data to analyze the situation in the market for gas in
Motorville.
a) Draw a figure showing the demand curve for gasoline and the supply curve of gasoline. What
are the equilibrium price and quantity?
b) Suppose the price is $3.30. Describe the situation in the market and explain how the market
Goel/Fall 2023
adjusts. Now suppose the price is $3.00. Describe the situation in the market and explain how the
market adjusts.
Quantity demanded
Quantity supplied
(thousands of
(thousands of gallons
gallons per week)
per week)
290
80
20
300
70
30
310
60
40
320
50
50
330
40
60
340
30
70
350
20
80
Price
(cents per gallon)
4. Peacerose is a fictitious country with a decentralized economy. It produces two things: food
and tourism. To produce these, it uses three scarce factors of production: labor, natural resources
(land, water) and technology. Answer the following questions about Peacerose’s production
possibilities frontier (PPF).
a) Suppose the opportunity cost of each thing increases the more of it is produced. Draw the PPF
(with tourism on the x axis and food on the y axis). No explanation needed.
b) Peacerose experiences a volcanic eruption that renders a significant proportion of land
unusable. Depict on a PPF graph with the same axes what will happen to the frontier relative to
before and explain.
c) Peacerose develops a new technology that makes labor more efficient in producing food.
Show graphically and explain the effect on the PPF relative to the original PPF in part (a).
d) Peacerose develops new marketing strategies to attract tourists. Show graphically and explain
the effect on the PPF relative to the original PPF in part (a).
Goel/Fall 2023