You must show your problem solving process. A solution alone cannot get any credits.

1.  Answer the following questions with no more than three sentences.

• What is a household? How do households interact with firms in a market?

• What is a firm? What other terms do economists use interchangeably with the term “firm”?

• What is technology and what factors does it depend on?

• What is an entrepreneur?

2.  Paul runs a lobster shop in Cape Cod. He is debating whether he should extend his hours of operation. Paul figures that his sales revenue will depend on the number of additional hours the lobster shop is open as shown in the table above. He would have to hire a worker for those hours at a wage rate of $25 per hour.

• Using marginal analysis, how many hours should Paul extend his hours of operations?

• What is Paul’s marginal benefit if he decides to stay open for six hours instead of five hours?

• What is Paul’s marginal cost if he decides to stay open for six hours instead of five hours?

3.  This table shows the number of labor hours required to produce a cell phone and a board foot of lumber in Estonia and Finland.

• Which country has an absolute advantage in the production of cell phones?

• Which country has an absolute advantage in the production of lumber?

• What is Estonia’s opportunity cost of producing one cell phone?

• What is Finland’s opportunity cost of producing one cell phone?

• What is Estonia’s opportunity cost of producing one board foot of lumber?

• What is Finland’s opportunity cost of producing one board foot of lumber?

• If each country specializes in the production of the product in which it has a comparative advantage, who should produce cell phones?

• If each country specializes in the production of the product in which it has a comparative advantage, who should produce lumber?

4.  Figure below shows the production possibilities frontier for New Zealand, an agrarian nation that produces two goods, meat and vegetables.

• What is the opportunity cost of one pound of vegetables?

• What is the opportunity cost of one pound of meat?

• Suppose New Zealand is currently producing 60 pounds of vegetables per How much meat is it also producing, assuming that resources are fully utilized?

• If New Zealand chooses to produce 160 pounds of vegetables, how much meat can it produce to maximize production?

5.  The table below shows the demand schedules for green tea of two individuals (John and Jane) and the rest of the market.

• Fill out the market quantity demanded in the last column of the

• If the price of green tea rises from $3 to $4, what will happen to the market quantity demanded?

• If the table below shows the supply schedule, what is the equilibrium price and quantity?

• Suppose the prevailing price is $4 per Is there a shortage or a surplus in the market? What is the quantity of the shortage or surplus?

• How many lbs will be sold if the market price is $4 per lb?

• Suppose the market price is $8 per lb. Is there a shortage or a surplus in the market? What is the quantity of the shortage or surplus?

• How many lbs will be sold if the market price is $8 per lb?

6.  The cities of Francistown and Nalady are five miles apart. Francistown enacts a rent control law that puts a ceiling on rents well below their equilibrium market value. Predict the short-run impact of this law on the competitive equilibrium rent in Nalady, which does not have a rent control law.

• Illustrate your answer with one demand and supply graph for the apartment market in Francistown and another demand and supply graph for the apartment market in
• Make sure that your graphs clearly show (1) the initial equilibrium before the rent control in both markets and (2) what happens after the imposition of rent control.
• Clearly show any shifts in the demand or supply curves, and the movement along the curves for each market.
• Label your graphs fully and provide written explanation for your