3. a. If people decide to have more children (a change in tastes), they will want larger vehicles for hauling their kids around, so the demand for minivans will increase. Supply won't be affected. The result is a rise in both price and quantity, as Figure 12 shows.

Figure 12

b. If a strike by steelworkers raises steel prices, the cost of producing a minivan rises (a rise in input prices), so the supply of minivans decreases. Demand won't be affected. The result is a rise in the price of minivans and a decline in the quantity, as Figure 13 shows.

　

Figure 13

c. The development of new automated machinery for the production of minivans is an improvement in technology. The reduction in firms' costs results in an increase in supply. Demand isn't affected. The result is a decline in the price of minivans and an increase in the quantity, as Figure 14 shows.

Figure 14

d. The rise in the price of sport utility vehicles affects minivan demand because sport utility vehicles are substitutes for minivans (that is, there is a rise in the price of a related good). The result is an increase in demand for minivans. Supply is not affected. In equilibrium, the price and quantity of minivans both rise, as Figure 12 shows.

e. The reduction in peoples' wealth caused by a stock-market crash reduces their income, leading to a reduction in the demand for minivans, since minivans are likely a normal good. Supply isn’t affected. As a result, both price and quantity decline, as Figure 15 shows.

Figure 15

a. When a hurricane in South Carolina damages the cotton crop, it raises input prices for producing sweatshirts. As a result, the supply of sweatshirts shifts to the left, as shown in Figure 19. The new equilibrium has a higher price and lower quantity of sweatshirts.

Figure 19

　

b. A decline in the price of leather jackets leads more people to buy leather jackets, reducing the demand for sweatshirts. The result, shown in Figure 20, is a decline in both the equilibrium price and quantity of sweatshirts.

Figure 20

c. The effects of colleges requiring students to engage in morning calisthenics in appropriate attire raises the demand for sweatshirts, as shown in Figure 21. The result is an increase in both the equilibrium price and quantity of sweatshirts.

Figure 21

　

　

　

d. The invention of new knitting machines increases the supply of sweatshirts. As Figure 22 shows, the result is a reduction in the equilibrium price and an increase in the equilibrium quantity of sweatshirts.

Figure 22

6. A temporarily high birth rate in the year 2005 leads to opposite effects on the price of babysitting services in the years 2010 and 2020. In the year 2010, there are more 5-year olds who need sitters, so the demand for babysitting services rises, as shown in Figure 23. The result is a higher price for babysitting services in 2010. However, in the year 2020, the increased number of 15-year olds shifts the supply of babysitting services to the right, as shown in Figure 24. The result is a decline in the price of babysitting services.

Figure 23 Figure 24

2. a. The imposition of a binding price floor in the cheese market is shown in Figure 3. In the absence of the price floor, the price would be P1 and the quantity would be Q1. With the floor set at Pf, which is greater than P1, the quantity demanded is Q2, while quantity supplied is Q3, so there is a surplus of cheese in the amount Q3 – Q2.

b. The farmers’ complaint that their total revenue has declined is correct if demand is elastic. With elastic demand, the percentage decline in quantity would exceed the percentage rise in price, so total revenue would decline.

c. If the government purchases all the surplus cheese at the price floor, producers benefit and taxpayers lose. Producers would produce quantity Q3 of cheese, and their total revenue would increase substantially. But consumers would buy only quantity Q2 of cheese, so they are in the same position as before. Taxpayers lose because they would be financing the purchase of the surplus cheese through higher taxes.

Figure 3

3. a. The equilibrium price of Frisbees is $8 and the equilibrium quantity is 6 million Frisbees.

b. With a price floor of $10, the new market price is $10 since the price floor is binding. At that price, only 2 million Frisbees are sold, since that’s the quantity demanded.

c. If there’s a price ceiling of $9, it has no effect, since the market equilibrium price is $8, below the ceiling. So the equilibrium price is $8 and the equilibrium quantity is 6 million Frisbees.