1. Suppose the U.S. economy moves out of a recession and incomes rise. What will happen to the equilibrium prices and quantities of normal goods? 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? Would your answer be the same if you were discussing inferior goods? Explain using supply/demand graphs.
2. Draw a graph showing the impact of students returning to campus in August on the market for pizza 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 supply/demand graphs.
3. A new medical study reports that washing your hair everyday increases the probability of baldness. 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 shampoo.
4. Suppose that the government creates a new subsidy for producers of smoke detectors. 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 smoke detectors.
5. Fabric is used to make dresses. If the price of fabric increases what is likely to happen to the equilibrium price and quantity for dresses. 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 a graph.
6. Suppose that people expect that the price of computers will fall next month. At the same time a technological advance take place in the computer industry. What happens to equilibrium price and quantity? Illustrate using a graph.
7. Suppose that the government impose a tax 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 orange juice to be lower in December. At the same time a new study just released states that drinking more orange juice will increase your chance of not getting cancer. What happens to equilibrium price and quantity? Which quantity is affected and how do you know? 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) rise, 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 orQd) 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
