1.
Explain each of the following statements using
supply-and-demand diagrams.
a)
“When a cold snap hits Florida, the price of
orange juice rises in supermarkets throughout the country”.
b)
“When the weather turns warm in New England every
summer, the price of hotel rooms in Caribbean resort plummets.”
c)
“When a war breaks out in the Middle East, the
price of gasoline rises, and the price of a used Cadillac falls.”
2.
Consider the market for minivans. For each of the
events listed here, identify which of the determinants of demand or supply are
affected. Also indicate whether demand or supply increases or decreases. Then
draw a diagram to show the effect on the price and quantity of minivans.
a)
People decide to have more children.
b)
A strike by steelworkers raises steel prices.
c)
Engineers develop new automated machinery for the
production of minivans
d)
The price of sports utility vehicles rises.
e)
A stock-market crash lowers people’s wealth.
3.
Using
supply-and-demand diagrams show the effect of the following events on the market
for sweatshirts.
a)
A hurricane in South Carolina damages the cotton
crop.
b)
The price of leather jackets falls.
c)
All colleges require morning exercise in
appropriate attire.
d)
New knitting machines inverted.
4.
Lovers of classical music persuade Congress to
impose a price ceiling of $40 per concert ticket. As a result of this policy, do
more or fewer people attend classical music concerts?
5.
The Government has decided that the free market
price of cheese is too low.
a)
Suppose the government imposes a binding price
floor in the cheese market. Draw a supply-and-Demand diagram to show the effect
of this policy on the price of cheese and the quantity of cheese sold. Is there
a shortage or surplus of cheese?
b)
Farmers complain that the price floor has reduced
their total revenue. Is this possible? Explain.
c)
In response to farmers’ complaints, the
government agrees to purchase al the surplus cheese at the price floor. Compared
to the basic price floor, who benefits from this new policy? Who loses?