To make life easy, here are the rules:
1. You may submit an assignment with one name or with two names.
2. If you and a partner submit the assignment together, you must both be from the same section. You will both receive credit.
3. You must submit the homework assignment in your correct section.
4. The assignment can either be hand-written or typed on a computer-I don't care as long as I can read it.
5. Assignments will be collected at the end of class on the due date. They must be submitted by the end of the class period. No Late Assignments!
6. Please staple your homework pages together with this page on top.
1. (a) What is the "Law of Demand"?
(b) In class, I said that demand curves always slope downward because of two specific "effects." Define and explain what these two effects are.
2. Explain the effect of each of the following on the demand curve for new computers:
(a) The price of computers falls by 30 percent.
(b) Total income (Y) in the economy rises.
3. Demonstrate in a supply and demand graph the likely effect of an increase in the price of gas on the equilibrium quantity and equilibrium price of hybrid cars.
4. NOTE: In answering this question, draw and carefully label a set of axes. On the horizontal axis of your graph, show the quantity of DVD rentals. On the vertical axis show the price per DVD rental. Since I am not giving you specific data on prices and quantities, make a "free-hand" drawing of the curve or curves you are asked to examine. Focus on the general shape and position of the curve(s) before and after each event occurs. For each scenario, draw a new curve that shows what happens in each of the circumstances. In particular, the curves could shift to the left, shift to the right, or stay where they are.
(a) All other things unchanged, what happens to the demand curve for DVD rentals if there is:
i) an increase in the price of movie theater tickets;
ii) a decrease in family income;
iii) an increase in the price of DVD rentals?
(b) All other things unchanged, what happens to the supply curve for DVD rentals if there is:
i) an increase in wages paid to the clerks who sell DVDs;
ii) an increase in the price of DVD rentals;
iii) an increase in the number of DVD rental kiosks?
(c) What happens to the equilibrium price (P*) and the equilibrium quantity (Q*) of DVD rentals if BOTH the price of movie theater tickets increases and the wages paid to DVD clerks increases, ceteris paribus? Again, you don't need actual numbers to arrive at an answer. Just focus on the general position of the curve(s) before and after the event. (This is a trick question-there are THREE possible outcomes to this scenario. Give me all three for full credit.)
5. (a) Suppose the pizza industry is made up of three firms: The Mark Company, Mike, Inc., and Bill Enterprises. Use the information in the following table to construct the market supply curve for pizza. Show the information in the table and in a graph.
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|
Mark's Supply
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Mike's Supply
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Bill's Supply
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market supply
|
|
Price
|
Q1
|
Q2
|
Q3
|
QS
|
|
5.00
|
25
|
30
|
20
|
|
|
5.50
|
30
|
40
|
25
|
|
|
5.75
|
35
|
50
|
30
|
|
|
6.00
|
40
|
60
|
35
|
|
|
6.25
|
45
|
70
|
40
|
|
(b) Suppose the market for pizza is made up of three consumers: Pedro, Curt, and Tim. Use the information in the following table to construct the market demand curve for pizza. Show the information in the table and in a graph.
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Pedro's Demand
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Curt's Demand
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Tim's Demand
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Market Demand
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|
Price
|
Q1
|
Q2
|
Q3
|
QD
|
|
5.00
|
30
|
80
|
45
|
|
|
5.50
|
25
|
70
|
40
|
|
|
5.75
|
20
|
60
|
35
|
|
|
6.00
|
15
|
50
|
30
|
|
|
6.25
|
10
|
40
|
25
|
|
(c) Now, put the curves from parts (a) and (b) together. In this economy, what is the equilibrium price of pizzas? What is the equilibrium quantity? What would happen if Bill Enterprises shut down? (By this I mean what happens to the curves?)