ECO82210 Economics and Quantitative Analysis
Special Agent Fox Mulder has a budget of $180. He spends it on conspiracy theory magazines (good X) and UFO videos (good Y). Each magazine costs $30, and each UFO video costs $20.
(a) Write out and plot Fox Mulder’s budget constraint (2 points).
(b) What is Fox Mulder’s trade-off? How many UFO videos must he give up to purchase an additional conspiracy theory magazine? (1 point).
(c) Upon hearing of Mulder’s obsessive expenditure, his boss, Assistant Director Walter Skinner, cuts his budget to $90. Write out and plot Mulder’s new budget constraint. How has his budget constraint changed?
The production possibility table for the making of Karaoke machines (good Y) and moviequality Chewbacca masks (good X) is shown in the table below:
Combination Chewbacca masks (thousands) Karaoke machines (thousands)
A 0 10
B 2 9
C 4 7
D 6 4
E 8 0
(a) Plot the production possibilities data with Karaoke machines on the Y-axis and Chewbacca masks on the X-axis. What is the opportunity cost of the first 2,000 Chewbacca masks?
(b) Between which points is the opportunity cost per thousand Chewbacca masks the highest?
(c) At point D, what is the opportunity cost of 1,000 more Karaoke machines? What is the opportunity cost of 2,000 more Karaoke machines?