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Q No.1) Your aunt is thinking about opening a hardware store. She estimates that it would cost $500,000 per year to rent the location and buy the stock. In addition, she would have to quit her $50,000 per year job as an accountant. a. Define opportunity cost.

b. What is your aunt’s opportunity cost of running a hardware store for a year? If your aunt thought she could sell $510,000 worth of merchandise in a year, should she open the store? Explain. Q No.2) A commercial fisherman notices the following relationship between hours spent fishing and the quantity of fish caught: Hours| 0| 1| 2| 3| 4| 5|

Quantity| 0| 10| 18| 24| 28| 30|
a) What is the marginal product of each hour spent fishing? b) Use these data to graph the fisherman’s production function. Explain its shape. Q No.3) Maria has decided always to spend one-third of her income on clothing. a) What is her income elasticity of clothing demand?

b) What is her price elasticity of clothing demand?
c) If Maria’s tastes change and she decides to spend only one-fourth of her income on clothing, how does her demand curve change? What is her income elasticity and price elasticity now? Q No.4) The equilibrium price of coffee mugs rose sharply last month, but the equilibrium quantity was the same as ever. Three people tried to explain the situation. Which explanations could be right? Explain your logic. Billy: Demand increased, but supply was totally inelastic.

Marian: Supply increased, but so did demand.
Valerie: Supply decreased, but demand was totally inelastic. Q No.5) Explain each of the following statements using supply-and-demand diagrams. a) “When a cold snap hits Florida, the price of orange juice rises in supermarkets throughout the country.” b) “When the weather turns warm in New England every summer, the price of hotel rooms in Caribbean resorts plummets.” c) “When a war breaks out in the Middle East, the price of gasoline rises, and the price of a used...
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