Part 1
1. Suppose that, using all of his resources, Jack can produce 20 raft trips or 30 fishing trips. Also, using all of his resources, John can produce 20 raft trips or 10 fishing trips. Given this information, who has the comparative advantage in raft trips? In fishing trips? If both John and Jack specialize in the good for which they have a comparative advantage, how many fishing trips and rafting trips will they produce?
2. Suppose that SUVs and gas are complements. What happens to the demand for gas if the price of SUVs falls dramatically? Use a completely-labeled graph to show the effect.
3. Use a completely-labeled graph to show the effect on the supply of a gas of a substantial increase in the price of oil.
Part 2
1. Describe the "Law of Market Forces." (Why does the market tend toward equilibrium?)
2. Use a supply and demand graph to show the effect on the equilibrium price and equilibrium quantity of coffee-shop, brewed coffee of the following events:
a. The price of tea, a substitute, decreases.
b. The wages paid to coffee shop employees rises dramatically
3. Use a supply and demand graph to show the effect on the equilibrium price and equilibrium quantity of health-care services of the following events:
a. A federal mandate requires all uninsured individuals to purchase health care through an online marketplace.
b. The federal government subsidizes the production of health care services.
4. Consider the market for public transportation in Denver, an inferior good. Suppose that consumer incomes rise dramatically and new legislation increases the number of bus companies that are allowed to operate in Denver. Use a graph to show the effect of these events on equilibrium price and equilibrium quantity of public transportation in Denver.