Assignment:
1. For each of the following pairs of products, state which are complements, which are substitutes, and which are unrelated.
a. Pepsi and Coke
b. Oscar Mayer hot dogs and Wonder hot dog buns
c. Jiffy peanut butter and Smucker's strawberry jam
d. Hewlett-Packard printers and Texas Instruments hand calculators
2. For the following events, state what the result will be for McDonald's Big Mac hamburgers.
- a movement along in the demand curve
- or whether it will cause the curve to shift. If the demand curve shifts, indicate whether it will shift to the left or to the right
a. The price of Burger King's Whopper hamburger declines.
b. McDonald's distributes coupons for $1.00 off on a purchase of a Big Mac.
c. Because of a shortage of potatoes, the price of French fries increases.
d. Kentucky Fried Chicken raises the price of a bucket of fried chicken.
3. Following are four graphs and four market scenarios, each of which would cause either a movement along the supply curve for Pepsi or a shift of the supply curve. Match each scenario with the appropriate diagram.
a. A decrease in the supply of Coke
b. Average household income in the United States drops from $42,000 to $41,000
c. An improvement in soft-drink bottling technology
d. An increase in the price of sugar
4. According to an article in the Wall Street Journal the price of flat-screen televisions fell between 2001 and 2004 from more than $8,000 to about $3,000. During that period Sharp, Matsushita Electric Industrial, and Samsung all began producing flat-screen televisions. Use a demand and supply graph to explain what happened to the quantity of flat-screen televisions sold during this period. (You must discuss price, quantity, demand, and supply to be considered for full credit).
5. Briefly explain why each of the following statements is true or false:
a. If the demand and supply for a product both increase, the equilibrium quantity of the product must also increase.
b. If the demand and supply for a product both increase, the equilibrium price of the product must also increase.
c. If the demand for a product decreases and the supply of the product increases, the equilibrium price of the product may increase or decrease, depending upon whether supply or demand has shifted by more.
6. Below are the supply and demand functions for two markets. One of the markets is for BMW automobiles, and the other is for a cancer-fighting drug, without which lung cancer patients will die. Explain which diagram most likely represents which market and why.
