Assignment:
Part I. Multiple Choice Questions
Choose only ONE correct answer.
1. Use the graph below with three demand curves (line A, B and C) and some points (the quantity demanded) on them. A "decrease in demand" would be illustrated as a change from:
A. Point 1 to point 4
B. Point 1 to point 3
C. Line A to Line B
D. Line A to Line C
2. Which one in the following group is a pair of complements ____?
A. Coke and Pepsi
B. McDonald's burger and Wendy's burger
C. Black coffee and creamer
D. Bottled water and tap water
3. For a high-end handbag, which statement is NOT correct ____?
A. Its income elasticity < 0
B. Its income elasticity > 1
C. Its demand curve is more flexible in the short-term.
D. Its income elasticity should be higher than gasoline.
4. The table below shows the weekly demand for tacos in a market where there are two buyers. If there were 1,500 buyers in the market, each has a demand schedule as the average of Abby and John, then the weekly quantity of tacos demanded in the market at a price of $5 ____:
Price Abby's Quantity John's Quantity
$6 7 4
$5 9 7
$4 15 10
$3 21 15
A. 27,000
B. 15,000
C. 12,000
D. 9,000
5. Suppose California Sunkist citrus and Florida Navel oranges are substitutes for juice. A drought in Florida destroyed a good portion of the Navel oranges, ceteris paribus, we have ____,
A. the price of both Sunkist and Navel and will fall.
B. the price of Sunkist will fall, and the price of Navel will increase.
C. the price of both Sunkist and Navel will increase.
D. the price of Sunkist increases, the price of Navel will fall.
6. Monthly housing price in Jonesboro has been increasing in 2019 compared with 2018. On the other side, demand for houses and apartments in Jonesboro goes up as well. Recall the Law of Demand in our class. As an economist, you are asked by city council to figure this puzzle out. How would you explain this pattern ____?
A. In a college town, the law of demand of demand does not always hold.
B. Housing market of Jonesboro is special. There is an upward sloping demand curve.
C. The higher demand of housing came from over-supply in 2018.
D. There are some factors other than price shifted housing demand curve to the right.
7. After the L.A. teacher strike, teachers made a new deal with the L.A. Unified School District. Teachers got a 15% wage raise. Which statement is correct ____?
A. If the new wage is above the equilibrium level, there will be a shortage of teachers.
B. If the new wage is above the equilibrium level, there will be a surplus of teachers.
C. The wage raise has no impact on the supply of public education in L.A.
D. This new deal may increase demand for teachers in L.A.
8. The state government of Arkansas tried to support soybean price, by paying farmers not to plant soybean on some of their land. If we assume demand curve for soybean remains the same, which statement is correct ____?
A. The supply curve shifts to the left, and new market price would be higher.
B. The supply curve shifts to the right, and new market price would be higher.
C. The supply curve shifts to the right, and new market price is unchanged.
D. The supply curve shifts to the left, and new market price is unchanged.
9. Suppose due to the high price, the demand for one new Nikesneakersis perfectly elastic, which of the following is NOT correct ____?
A. Shifts in the supply curve of Nike would change the market price.
B. The elastic demand is due tothere is no perfect substitute for Nike shoes.
C. When Nike increases the supply,the market price would be much lower.
D. Consumers would largely increase their demand, if Nike lower the price a little.
10. Larry is going to sell his 2015 Ford Focus price. His bottom line for this car is $8,000. If he sells his car to a dealer, he can get $7,500. He also posted his car on Craigslist by owner, at a higher price $9,000. One day, he made a deal with someone and sold his car at $8,700. How much is Larry's seller (producer) surplus from this transaction ____?
A. $1,500
B. $1,200
C. $1,000
D. $700.
11. Suppose the federal government imposes a small carbon tax on automakers, but the price of gasoline has doubled due to a Middle East crisis which has reduced oil production. In the market for autos, these changes mean that supply and demand have both changed. But the effect on the demand is larger than the effect on the supply. The result is that the price of autos will ____ and the number of autos sold will ____.
A. rise; increase
B. fall; decrease
C. fall; perhaps change but we are not sure.
D. rise; perhaps change but we are not sure.
12. The time dimension of elasticity is an important concern to many companies, which statement about price elasticity is correct ____?
A. For Heinz mustard, its price elasticity of demand decreases overtime.
B. For pick-up trucks, their price elasticity of demand decreases overtime.
C. For antiques, their price elasticity of supply is quite high.
D. For strawberries, the price elasticity of supply decreases overtime.
Part II. Short-answer Questions
Please make sure your answer is no more than 250 words in each question.
1. One unusual cold weather causes the supply of roses for Valentine's Day 2019 much lower than the last year. This change would shift which curve, the demand curve for roses or the supply curve of roses? What direction the curve is going to move, to the left or to the right? What would be the change of the price of roses in the new equilibrium, going up or going down? Tip: you can present your answer either intuitively, graphically or mathematically.
2. The following graph, panel A shows a typical consumer's demand curves for gasoline in the City of West River in the year 2016 (D0) and 2017 (D1).
a. Panel A shows gas demand in West River. In the year 2016, if market price of gasoline was $5 per gallon, how much would be the weekly quantity demanded of gasoline in the city? In 2017, average income of West River noticeably increased. Thus, demand for gasoline shifted from D0 to D1. Now at the same price, how much is the new demand in 2017?
b. Panel B illustrates the city imposed a quota of gas supply due to environmental concerns. For example, in 2016, each resident in West River has a quota 20 gallons of gasoline per week. This policy is illustrated as a vertical supply curve S1. Also in 2017, the city planned to reduce gas supply to 15 gallons per week (the new supply curve is S2). Here we assume the demand curves are the same. If the quota were implemented in 2016, given the demand and supple curves, how much is the equilibrium market price of gasoline? If the same(2016) quota were implemented in 2017, the market price of gas would be higher, lower or unchanged in the city? After the new quota in 2017, how much is the gas price at the market equilibrium?
3. Suppose a candy company is conducting market research. They found the market demand (Qd) and supply (Qs)functions for their sugar free candy are as follows, where P = price ($ per bag).
Qd = 500 - 20 * P (thousand bags)
Qs = 100 + 20 * P (thousand bags)
a. What is the market equilibrium price of this candy? At market equilibrium, how many bags of candy would be sold?
b. If the company tries to price the candy at $12 per bag, what would be the quantity demanded and quantity supplied? The company can achieve a market equilibrium at this price?
4. The price elasticity of demand for one mobile gameproduced by the company EZ-Game is 2.5 at the current price of $3.00 and with 200,000 subscribers. Now suppose the company tries to lower the price to $2.70 (30 cents lower). Tip: the elasticity should be a negative number.
a. How many new subscribers would purchase the game?
b. How much their revenue of the game would change?
5. Suppose in the organic honey market, the demand and supply for organic honey are
Qd= 25 - 5 * P (million bottles)
Qs = 4 + 2 * P(million bottles)
Here P is the price of organic honey ($ / bottle)
To improve the revenue of honey producers (bee farmers), the government (USDA) is trying to set up a price floor. Now USDA imposesone price floor (a minimum market price) at $4/bottle. What the policy impact of this price floor? Does the price floor work?