1. Suppose the U.S economy enters a recession and incomes fall. What will happen to the equilibrium prices and quantities of inferior goods? If price stays the same would that be equilibrium? Why or why not? What will eventually happen in th3 market? What happened to equilibrium price and quantity? Which quantity is affected and how do you know? Would your answer be the same if you were discussing normal goods? Explain using supply/demand graphs.
2. Draw a graph showing the impact of students returning to campus in June on the market for textbooks in a college town. If price stays the same would that be equilibrium? Why or why not? What will eventually happen in the market? What happens to equilibrium price and quantity? Which quantity is affected and how do you know? Explain using a graph how this will impact the market for textbooks.
3. A new medical study reports that drinking alcohol twice a week will increase your chance of getting liver cancer. If price stays the same would that be equilibrium? Why or why not? What will eventually happen in the market? What happens to equilibrium price and quantity? Which quantity is affected and how do you know? Illustrate using S/D graph the effects of this report on the market for alcohol.
4. Suppose that a technological advance takes place in the automotive industry. If price stays the same would that be equilibrium? Why or why not? What will eventually happen in the market? What happens to equilibrium price and quantity? Which quantity is affected and how do you know? Explain using a graph how this will impact the market for automobiles.
5. Wheat is used to produce bread. If the price of wheat increases what is likely to happen to the equilibrium price and quantity for bread. If price stays the same would that be equilibrium? Why or why not? What will eventually happen in the market? What happens to equilibrium price and quantity? Which quantity is affected and how doyou know? Illustrate using a graph.
6. Suppose that people expect that the price of computers will rise next month. At the same time governments impose a $3.00 tax on the computer industry. What happens to equilibrium price and quantity? Illustrate using a graph.
7. Suppose that the government impose a subsidy of $1 on the production of Nikes (Jordans). At the same time Nikes and Reeboks are substitutes and the price of Reeboks decrease. What happens to equilibrium price and quantity? Illustrate using a graph.
8. Assume that producers expect the price of shampoo to be higher in April. At the same time a new study just released states that washing your hair everyday increases the probability of baldness. What happens to equilibrium price and quantity? Illustrate using a graph.
9. Assume that VCRs and videotapes are complements. When the price of VCRs fall, and the price of plastic (used to make videotapes) falls, what should happen to price and quantity of videotapes. What happens to equilibrium price and quantity? Illustrate using a graph.
Note: In each question make sure you discuss which determinant is involved and what is happening to P and Q. In addition, in questions 1-5 only make sure
you specify which Q it is (Qs or Qd) and how do you know.
Questions 1-5 only: If price remains the same after demand or supply changes would that be equilibrium? Why or why not?
Questions 6-9 only: Multiple shifts (demand and supply changes at the same time); four (4) equilibriums shift the curves by the same magnitude (amount), P or Q will be no change
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