Problem Set 1
Emilio Muñiz
Summer 2025
Please answer the following questions to the best of your ability. There is no specific order or weight
assigned to each question. If you encounter any typographical errors or ambiguities, feel free to contact
me at rm2104@[Link].
1. Provide three examples of decision-making under scarcity.
2. Categorize each of the following statements as positive, normative, both, or neither :
(a) The USD–EUR exchange rate is increasing due to current uncertainty.
(b) People who buy expensive cars also tend to buy expensive shoes.
(c) People with expensive cars should donate to charity.
(d) The government has never provided universal healthcare. It should adopt the Scandinavian
model.
(e) The government needs to raise the minimum wage.
(f) You should wear the blue shirt, it matches your eye color.
(g) The baby is attracted to bright objects.
(h) Keep the baby away from the light bulb.
3. Plot the following functions:
f (x) = 5x − 5
f (x) = x + 4
f (x) = 7
f (x) = −2x − 5 + 10
4. Find the equation of the line with slope 4 that passes through the point (2, 10).
5. Find the equation of the line that passes through the points (1, 5) and (−1, −5). Then, graph it.
6. Solve the following systems of equations using any method. If a system has no solution, state so
clearly:
(
3x − y = 5
2x + 3y = 0
(
−x − y = 50
25x + y = 500
(
10y − 5x = 3
−x + 4y = 12
7. Apples cost $10 and bananas cost $5. Lina has $200 to spend on both goods. Graph her budget
constraint, placing apples on the horizontal axis, and answer the following questions:
(a) Can she afford the following bundles?
• (5, 5)
• (10, 20)
1
Econ 1001 Summer 2025
• (0, 40)
• (0, 0)
• (15, 15)
• (15, 10)
(b) What is the opportunity cost of one banana in terms of apples? What is the opportunity cost
of one apple in terms of bananas?
8. Draw a typical Production Possibility Frontier (PPF). Clearly distinguish between:
• Feasible and infeasible production bundles
• Productively efficient and inefficient points
9. Provide an example of the Law of Increasing Opportunity Costs. Try to think beyond the standard
examples discussed in class.
10. Mexico and the United States produce corn and milk. Their PPFs are given by (with corn on the
x-axis):
mM = 10 − 1cM
mU = 100 − 50cU
(a) Is there comparative advantage? What about absolute advantage?
In autarky, Mexico produces (5, 5) and the United States produces (1, 50).
(a) Are there gains from trade? Why or why not?
(b) Can you find a combination of total production that makes both countries better off?
11. Jerónimo has $100 to spend on t-shirts and pants. The price of both t-shirts and pants is $10.
(a) Draw his initial budget constraint.
(b) Upon arriving at the store, he sees that t-shirts are 50% off (final price $5). Draw his new
budget constraint.
(c) If he finds an additional $100 on the floor and decides to keep it, how does his budget set
change?
12. The individual demand functions for candles from Bruno and Daniel are given below. (Remember:
do not include negative quantities.)
QB (P ) = 15 − 3P
QD (P ) = 20 − 2P
The store owner wants to calculate the total market demand and has asked for your help. Graph
the total market demand curve.
The supply functions for stores A and C are:
QA (P ) = P
QC (P ) = 2P + 1
Graph the total market supply curve.
Now, solve for the equilibrium price and quantity under the following three scenarios:
(a) Only Bruno demands, and total supply is provided by both stores.
(b) Both Bruno and Daniel demand, but only store C supplies.
(c) Both Bruno and Daniel demand, and both stores supply. (This is the hardest case! Try
it if you’re up for a challenge, but feel free to skip it.)
Do you notice anything interesting across these different scenarios?
Econ 1001 Summer 2025
13. Why is the following function not a valid demand curve?
QD (P ) = 1 + P 2
14. Find the equilibrium price and quantity in the following markets. These are provided as practice;
you do not need to complete all of them:
(
QD = 10 − P
QS = 3P
(
QD = 50 − 5P
QS = 6P + 5
(
QD = 5 − 32 P
QS = 45 P
(
QD = 2 − P
√
QS = P (This one is slightly more challenging if you’re tired of linear demand & supply curves.)
15. For each of the following cases, determine whether there is a shift in the demand curve, the supply
curve, both, or neither. Indicate whether the shift is inward or outward:
(a) Market for umbrellas: It suddenly starts to rain.
(b) Market for insulin: A new machine increases insulin production per second.
(c) Market for Coca-Cola: People discover that Pepsi stores its cans in an abandoned warehouse.
(d) Pharmaceutical market: The patent for aspirin expires and generic brands begin mass pro-
duction.
(e) Donuts: The price of coffee rises due to a geopolitical crisis in Colombia.
(f) Gasoline: Users on X1 claim that gas prices will rise soon.
(g) Printed books: A new government law bans e-books.
(h) Labubus: People finally realize that labubus are ugly.
16. Draw a graph and describe what happens to the equilibrium price and quantity (increase, decrease,
or ambiguous) in each of the following scenarios:
(a) Rightward shift of demand
(b) Inward shift of supply
(c) Rightward shift of demand and inward shift of supply
(d) Inward shift of demand and inward shift of supply
17. Can you come up with a real-world market and scenarios that would lead to each of the demand
and supply shifts described above?
18. The market for bike helmets is described by the following equations:
QD = 5 − 3P
QS = 2P
Following recent Tour de France hype, biking becomes more popular. Hypothesize what will happen
to the equilibrium price and quantity of helmets.
The new demand curve is:
QD = 10 − 3P
Find the new equilibrium. Was your hypothesis correct?
1 Previously Twitter