1. A recent breakthrough in the production of laser disk technology has decreased the cost of laser disks. These disks supposedly will increase the quality of music recordings tenfold over that available from CDs. What will happen to the price and quantity of CDs sold? Of laser disks sold?
2. You are an economic adviser to the Treasurer of the United States. Congress is considering increasing the sales tax on gasoline by $.03 per gallon. Last year motorists purchased 10 million gallons of gas per month. The demand curve is such that every $.01 increase in price decreases sales by 100,000 gallons per month. You also know that for every $.01 increase in price, producers are willing to provide 50,000 more gallons of gasoline to the market. The legislature has stated that the $.03 tax will increase government revenues by $300,000 per month and raise the price of gasoline by $.03 per gallon. Is it correct?
3. Consider the following demand and supply curves:
Qd = 5800 - 6P and Q5 = 4P - 120
a. Graph the supply and demand curves.
b. What are the equilibrium quantity and equilibrium price?
c. What happens in this market if a price floor of $600 is placed on this good?
d. If a price ceiling of $500 instead of a price floor were placed on this good, how would the market be affected?