Supply. Price. Supply ~

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1 For Problems 13, please show the shift or shifts in supply and dend in the graphs to the right below. LABEL ALL CURVES. Indicate in the blank spa,e provided below what will happen to suddlv. demand. Drice and Quantity. ( 8 points each). 1. Milk is a normal good. In the last few years the level of income has risen, on avemge, throughout much of the world. Show the effect on the market for milk. Supply YlO;'j Price Demand r Quantity.1 7' p I Milk Q 2. Farmers can raise either corn or soybeans on their land. Show the effect of the recent increase in the price of fq!!!. on the market for soybeans. Supply Demand (\II Price 1 Quantity 1 U"lvT r Q 5.1 I" 1, )vrr 1 1 Soybeans 3. Recently the value of the U.S. dollar against foreign currencies has fallen. (We will be discussing why later in the course. ) This is making European vacations more expensive. Show the effect on the market for American resorts. p Supply /} /)/; Price 7' Demand L Quantity 1 American Resorts Q.J v VI C.,..J.,bt'J Lv:/1 ("') L/\

2 4. (14 points) The demand for cat food is given in the chart to the right. a) Calculate the elasticity (responsiveness) of demand for cat food. Q/1"f)..?::.9 /"'I./J. d 1{ r;l"g{ /0 {C(,J.Q,J.)!.l = I' 7 d/?.: 'b L41'.. G Cllt7e'T:b) Is the demand elastic (responsive)? How can you tell? /P' r"'... '\ J :),..V d,< "2.4P 2 (.l..oi fty4l)/ (1+1.p')/. : /'i" e/".11.,2...) : J.,).I =.., j't '"'L. 1:B f"/v. e { " 1., J.y < I." c) Cite 2 factors that make the demand for a product. '10>1 "' JA,/I SJtrl /I? G.,d,L 4...,1 fi.lc,4..l",... t../"'s h ".., I' l",., y d) Choose 1 of the 2 factors you cited in part ( c ). Is it consistent with what you found in tern1s of elasticity in part (b)? Explain. I: 14,. r/,l. '.';1..,)...", C.J S"."I./I fh /1,),,,1 J1.1. M<',,&I. "",I", //p l/,.i "1,,1 qfflfl ,.,.,,1 """"r/1...,11 1.(,1" flj t I...4'.f'd 4 e) Suppose we find that over time I"" " ("..J.,, Price Cat food Quantitv Cat food Income $ $ :!..g... u'.'d. J'", 011( I).t I" 'It.,..... I(J 01 s 1.. I" "1. (".;.,r

3 5. (10 points) Refer to the table below for questions ae. a) The opportunity cost of 1 car fo J an is C;::'ve v/l /, y '7 C.c+ = r 1.,) 3 b) The opportunity cost of 1 car f U.S. is /" /, c) The u.s. has an absolute advantage in and Japan has an absolute advantage in q "."' I./t"""' Ur 5: ',,"4,.. /J'tl1,J C4../ /"dl/(ej'.1/ 41""1'1...1?" ) e), and J apan { " )1 eac "L Af ' 1!"./.l C!r/,.q

4 6. (7 points) The supply and demand for a textbook is given below Demand r.ri Quantity c:rs Supply Quantity ' /;'1 a) In the absence of any price ceiling or price floor, what will the equilibrium price and quantity be in this market? 11 r ')1 r Q="t@ I=J.) llo b) Suppose a price ceiling of $30.00 is imposed. How many books will be bought? 40 \1 t..? t, i I W'"4:f".,L 6{) o.c;;rli9:' tvy l{c (",1 ri., /7 fi?) c) State one of the things that might happen with the imposition of the price ceiling. (Answer should be based on text or lecture.) (' "'..'11'1$ (.(44,I\'..' 4'.. 't,l I.( u,..l.s"r d) What will be the effect ofa $30.00 price flqqr on the answers you calculated in part a? 1/1 re?/v t.,1 P (f I'J

5 7. (6 points) Use the following table for questions ac. ", This table refers to five possible buyers' willingness to pay for Good z. " Cassie Jamie John Jeremy Sarah Willinlrness $8.50 $7.00 $5.50 $4.00 $3.50 to Pay a) If the market price is $5.50, the consumer surplus in the market will bel c..fj,t'.,1, '" J.."" C 71; C:.I t;vrfl..i ::: ((".J'V S:J9).} nl;u.t',yu),t..l'ij1ljrii) ti <;:Sit' J""f'l "... ) 1,'!1 tv\/ = 1 + I. Jv ;:[57 b) If the price of good Z is $6.90, who will purchase the good? a. John and Sarah b. John, Jeremy and Sarah Cassie, Jamie and Cassie and Jamie c) Sketch the demand for good Z in the graph to the right. Carefully number and label the axes. C( p {" { kp I' cf"] 11{ } J 1)2 cjr 2. J If r /{Jte: I f /;ne.

6 Multiple Choice 3 points each. 8. Economics deals primarily a. poverty. with the concept of (9 scarcity. Def'1 c. changed. power. 0.1 ec.,"t 9. Which of the following concepts is NOT illustrated by the production possibilities ttonuelf a. efficiency b. opportunity equity d. tradeoffs 10. On the production possibilities frontier shown, the opportulfity cost to the economy of getting 10 additional roller blades by moving from point A to point B is a. 15 bikes. I() }, r b. 10 bikes. 6 If'.k '1""...:I (6:) 5 bikes. y It is impossible to lmow the opportunity cost without lmowing the cost of the resources used to produce the additional roller blades. A rational decisionmaker takes an action only if 'I? G) the marginal benefit is greater than the marginal cost. C 0/ I /5 A J I b. the marginal benefit is less than the marginal cost. C" d. c. e the marginal average benefit is is greater than than the both average the average cost. cost and the marginal cost. ;I? /l, C"1/",/

7 /J./ Ci"', 13. )jllpfose you make gold j ewelry.if the price of gold falls, we would expect C c ;,1 " ti yo.u to be willing and able to produce more jewelry than befor at each possible 1/Ij?vJJ f).yo.u pnce. to be willing and able to produce less jewelry than before at each possible 14. pnce. c. you will face a greater demand for your j ewelry. d. you will face a weaker demand for your jewelry. Whenever the price of a good changes, I' L \. a. there is a change in supply and demand.!} b. there is only a change in supply. ''i:; ( ]) there would be a movement along a supply curve and/or demand curve:', d. there would be no effect in the market. 15 If sellers do NOT respond at all to a change in price, CY supply must be perfectly inelastic. b. supply must be perfectly elastic. c. a long period of time must have elapsed. d. technological advancement must be great. tj';li!j q, ;J/" "' IJ c:l/j/:1 16.,en dmand is.inelastic, a decrease in price will cause an Increase In total revenue. IJ ) b ' a decrease in total revenue. r\,} ti, /,.I.. q " 17 c. no change in total revenue..p, ;? ). d. There is insufficient information to answer this question. '<.u Under rent control, landlords cease to be responsive to tenants' concerns about the quality of the housing because c) with shortages and waiting lists, they have no incentive to maintain and improve the property.. b. they know they can never please their tenants. y );I(p., c. the law no longer requires them to maintain their buildings. Q > d. that is the government's responsibility. 4 {;J J If the minimum wage is above the equilibrium wage, a. the quantity demanded of labor will be greater than the quantity supplied b. the quantity demanded of labor will equal the quantity supplied. fcj the quantity demanded of labor will be less than the quantity supplied. \..( anyone who wants a job at the minimum wage can find one. t.v s L

8 19. Refer to the graph show. What area represents consumer surplus when the price is PI? A DB c. C d. D 20. Refer to the graph show. price is PI? a. A+B }5"\ B+C V C+D d. A + B + C + D What area represents total surplus in the market when the Extra credit. 2 points Credit only given if answered correctly absence in this section of the course. no more than one In the graph to the right, show the effect of increasing gasoline prices and the resulting "use of ethanol on the market 1 for fqffi. (Note: corn can be used to make ethanol. ) pr}f SJ () vl \11 e:py1&1lr f)r: r; /)2 Of e{httj1" /J f'/ij I c ul'v1 Corn [1