1. Fill in the blanks in the following table. Note that the ordering of the first column has been scrambled.
2. When _____ (supply/demand) changes, the equilibrium price and the equilibrium quantity change in the same direction. When_____ (supply/demand) changes, the equilibrium price and the equilibrium quantity change in opposite directions.
3. Suppose the equilibrium price of accordions recently increased while the equilibrium quantity decreased. These changes were caused by a(n) ______(increase/decrease) in______ (supply/demand).
4. Suppose the equilibrium price of housing recently increased, and the equilibrium quantity increased as well. These changes were caused by a(n) ____ (increase/decrease) in_____ (supply/demand).
5. What Caused the Higher Gasoline Price? In the last month, the price of gasoline increased by 20 percent. Your job is to determine what caused the increase in price: a change in demand or a change in supply. Ms. Info has all the numbers associated with the gasoline market, and she can answer a single factual question. (She cannot answer the question Was the higher price caused by a change in demand or a change in supply?)
a. What single question would you ask?
b. Provide an answer to your question that implies that the higher price was caused by a change in demand. Illustrate with a complete graph.
c. Provide an answer to your question that implies that the higher price was caused by a change in supply. Illustrate with a complete graph.
6. Rising Price of Milk. In 2007, the price of milk increased by roughly 10 percent while the quantity consumed decreased. Use a supply demand graph to explain the changes in price and quantity.
7. Rising Price of Used Organs. Over the last few years, the price of transplantable human organs (livers, kidneys, hearts) has increased dramatically. Why? What additional information about the market for used organs would allow you to prove that your explanation is the correct one?
8. The Price of Summer Cabins. As summer approaches, the equilibrium price of rental cabins increases and the equilibrium quantity of cabins rented increases. Draw a demand and supply graph that explains these changes.
9. Simplest Possible Graph. Consider the market for juice oranges. Draw the simplest possible demand and supply graph consistent with the following observations. You should be able to draw a graph with no more than four curves. Label each of your curves as supply or demand and indicate the year (1, 2, or 3).
10. Zero Price for Used Newspapers. In 1987 you could sell a ton of used newspaper for $60. Five years later, you couldn?t sell them at any price. In other words, the price of used newspapers dropped from $60 to zero in just five years. Over this period, the quantity of used newspapers bought and sold increased. What caused the drop in price? Illustrate your answer with a complete graph.
11. Decrease in the Price of Heroin. Between 1990 and 2003, the price of heroin decreased from $235 per gram to $76. Over the same period, the quantity of heroin consumed increased from 376 metric tons to 482 metric tons. Use a demand and supply graph to explain these changes in price and quantity.
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