1.  Over the past 30 years, technological advances have reduced the cost of computer chips. How do you think this has affected the market for computers? For computer software? For typewriters?  Illustrate your answer with graphs.

2.  Using supply-and-demand diagrams, show the effect of the following events on the market for sweatshirts.  Yes, I want graphs.

a.       A hurricane in South Carolina damages the cotton crop.

b.       The price of leather jacket falls.

c.       All colleges require morning exercise in appropriate attire.

d.       New knitting machines are invented.

3.  The market for pizza has the following demand and supply schedules:

a.       Graph the demand and supply curves. What is the equilibrium price and quantity in this market?  Why  yes!  Graph paper would make it look professional.

b.       If the actual price in the market were above the equilibrium price, what would drive the market toward equilibrium?

c.       If the actual price in this market were below the equilibrium price, what would drive the market toward the equilibrium?

4.  Because bagels and cream cheese are often eaten together, they are complements.  Again, graphs.

a.       We observe that both the equilibrium price of cream cheese and the equilibrium quantity of bagels have risen. What could be responsible for this pattern- a fall in the price of flour or a fall in the price of milk? Illustrate and explain your answer.

b.       Suppose instead that the equilibrium price of cream cheese has risen but the equilibrium quantity of bagel has fallen. What could be responsible for this pattern- a rise in the price of flour or a rise in the price of milk? Illustrate and explain your answer.

5.  Suppose that the price of basketball tickets at your college is determined by market forces. Currently, the demand and supply schedules are as follows:

a.       Draw the demand and supply curves. What is unusual about this supply curve? Why might this be true?

b.       What are the equilibrium price and quantity of tickets?

c.       Your college plans to increase total enrollment next year by 5,000 students. The additional students will have the following demand schedule:

 Now add the old demand schedule and the demand schedule for the new students to calculate the new demand schedule for the entire college. What will be the new equilibrium price and quantity?

6. The government has decided 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 quantity of cheese sold. Is there a shortage or a surplus of cheese?

b.       Producers of cheese complain that the price floor has reduced their total revenue. Is this possible? Explain.

c.       In response to the cheese producers’ complaints, the government agrees to purchase all the surplus cheese at the price floor. Compared to the basic price floor, who benefits from this new policy? Who loses?

7.  A recent study found that the demand and supply for Frisbees are as follows:

a.       What are the equilibrium price and quantity of Frisbees?  I always want graphs.

b.       Frisbee manufacturers persuade the government that Frisbee production improves scientists’ understanding of aerodynamics and thus is important for national security. A concerned Congress votes to impose a price floor of $2 above the equilibrium price. What is the new market price? How many Frisbees are sold?

c.       Irate college students march on Washington and demand a reduction in the price of Frisbees. An even more concerned Congress votes to repeal the price floor and impose a price ceiling $1 below the former price floor. What is the new market price? How many Frisbees are sold?

8.  Suppose the federal government requires beer drinkers to pay a $2 tax on each case of beer purchased. (In fact, both federal and state governments impose beer taxes of some sort.)

a.       Draw a supply-and-demand diagram of the market for beer without the tax. Show the price paid by consumers, the price received by producers and the quantity of beer sold. What is the difference between the price paid by consumers and the price received by producers?

b.       Now draw a supply-and-demand diagram for the beer market with the tax. Show the price paid by consumers, the price received by producers and the quantity of beer sold. What is the difference between the price paid by consumers and the price received by producers? Has the quantity of beer sold increased or decreased?

9.Explain how buyer’s willingness to pay, consumer surplus and the demand curve are related.

10.  Explain how seller’s costs, producer surplus, and the supply curve are related.

11.  In a supply-and-demand diagram, show producer and consumer surplus in the market equilibrium.

12.  What is efficiency? Is it the only goal of economic policymakers?

13.  Name two types of market failure. Explain why each may cause market outcomes to be inefficient .