# Based on the information provided below for the market for video games, answer the following questions:

Problem Set 1

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Problem Set 1 is due by 11:59 p.m. (ET) on Monday of Module/Week 2.

1. Based on the information provided below for the market for video games, answer the following questions:

 PRICE Q DEMANDED Q SUPPLIED \$50 5 9 \$45 7 7 \$40 9 5 \$35 11 3 \$30 13 1

a.)    Draw and properly label the demand and supply graphs (this means you must label the axes and any lines you include on the graph).

b.)    What is the equilibrium price and quantity?

PRICE: \$45 ______________            QUANTITY: 7______________________

Now, assume that a new government report claims that video game play stimulates the brain.

c.)    What will this do to the demand curve? Of the list of things in the text that cause a change in demand, which best fits here as the cause of the demand shift?

The demand curve will shift to the right due to the changes in the consumer tastes and preferences.

d.)   What will happen to the equilibrium price and quantity?

P: __the equilibrium price will increase and shift to the right.                    Q: __The Quantity decreases since demand will increase since the supply decreases and the equilibrium shift t the left.

1. Based on the information provided below for the state of Montana, answer the following questions:

 CHOICE OIL / barrels WHEAT / bushels A 5000 0 B 4500 10000 C 2500 20000 D 0 25000

a.)    Draw the Production Possibilities Curve.

b.)    Determine the opportunity costs for a move from A to B; B to C; and C to D.

A to B: The opportunity cost of 1 wheat unit is 0.15 oil units. On the other hand, the opportunity cost for the 1 unit of oil unit is 6.667 what units.

B to C: The opportunity cost of 1 wheat unit is 0.2 oil while the opportunity cost for 1 unit oil is 5 Wheat.

C to D: The opportunity cost for 1 wheat is 0.5 oil units while the opportunity coil for 1 oil unit is 2 wheat.

1. In the space provided below, do the following:

a.)    Draw and properly label a demand and supply curve.

b.)    Indicate where the equilibrium Price and Quantities are located.

c.)    How do things change based on the following scenario?

• The market for hybrid cars is changing. There are more providers but due to bad publicity and poor performance, demand is falling.

Knowing this information, answer the following questions and then show the corresponding information in your graph:

d.)    What is the market you are dealing with?

The particular market is a narrow market where the demand is decreasing due to the bad publicity and poor performance and the supply is maintained.

e.)     Which curve(s) change(s)? Based on the lists in the text of what causes demand and supply to shift, what are the causes of these shifts? The curve keeps on changing due to a decrease in demand. The negative publication of the hybrid cars makes the customer preferences to change.

f.)     In what direction do they change?

The curve shifts to the left

g.)    What happens to the equilibrium price and quantity after these changes are put into effect? Do they go up, go down, or stay the same?

P: __The price goes down due to the decreasing trend_____________________

Q: __The quantity goes down due to the decreasing trend_____________________

1. Mario has reached a crossroads in his life. He is trying to decide whether to change careers.  Currently, Mario makes pizzas, but he is considering entering a different line of work testing video games. Mario can either test 6 games or toss 12 pizzas in a day. Interestingly, Mario’s friend Luigi is in a similar predicament. Luigi can test 3 games or toss 2 pizzas during a day.

Mario’s opportunity cost of testing one game: __________________0.5_________

(yes, you can test fractional games)

Luigi’s opportunity cost of testing one game: _____________1.5______________

(yes, you can test fractional games)

Mario’s opportunity cost of tossing one pizza: ___________2________________

(yes, you can have fractional pizzas)

Luigi’s opportunity cost of tossing one pizza: ___________0.667________________

(yes, you can have fractional pizzas)

Who has an absolute advantage in testing games? _________Mario_______________

Who has the comparative advantage in testing games? _________Luigi____________

Who has the comparative advantage in making pizzas? ___Mario__________________

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