2. Consider two firms in downtown San Francisco, one which owns the
building in which it is located and the other which rents. There is a significant increase
in downtown rents, and the manager of the firm which owns its building notes: "Faced
with higher costs, our renter neighbor had to move, but, because we own our building, our
costs are not rising and we don’t have to move."
Comment on the manager’s economic logic concerning the use of the input his
building represents.
3. Draw a production possibilities curve diagram for an economy.
a) Under what circumstances would a society be at a point inside of the curve?
b) Could it ever get to points outside of the curve? Explain.
c.)Explain how the slope you have given the curve illustrates an important cost
concept. (Your answer should show your understanding of the concept.)
4. Assume that the quantity demanded of a commodity, say, Z, were zero until its price
was as low as $20 per unit. From a price of $20 to $5, the quantity demanded increases one
unit for every $1 decrease in price. At a price of $5, the quantity demand does not change
with further decreases in price. Draw a graph of the demand function just described.
5. What will happen to the demand for movie admissions if:
a) the price of an admission increases?
b) the rental price of movie videos increases?
c) the supply of movies increases?
d) the supply of rental movie videos decreases?
6. Headline in USA Today: "Rent Controls Cause Scarcity of Apartment Units
in New York City."
Does this statement use correct economic terminology? Explain. With an appropriate
diagram, show what is happening in the market for apartments in New York.
7. Consider this statement: "In inflation-adjusted terms, the price of VCR's has
fallen each year for the past several decades, yet the quantity supplied of such machines
has gone up each year. It is clear, then, that the famous "Law of Supply"
doesn't really work."
Comment on the economic logic or illogic behind the statement, making clear your
understanding of the law of supply and the supply function