Assignment:
1. What is the mechanism by which the "invisible hand" pushes markets to equilibrium?
2. Explain the two main causes of market failure and give an example of each.
3. Use a production possibilities frontier to describe efficiency. (This question can be answered either with or without the use of a graph, depending on whether you have a graphing program on your computer. It is possible to describe the various points on the PPF without a graph.)
4. What is the difference between a positive and a normative statement? Give an example of each.
5. Explain how absolute advantage differs from comparative advantage.
6. What are the factors that determine the quantity of a good that buyers demand?
7. Define the equilibrium of a market. Describe the forces that move a market toward its equilibrium.
8. List and explain the four determinants of price elasticity of demand, discussed in chapter 5.
9. If demand is elastic how will an increase in price change total revenue? Explain.
10. A recent study found that the demand and supply schedules for Frisbees are as shown in the chart at the following link:
1. What are the equilibrium price and quantity of Frisbees?
2. Frisbee manufacturers persuade the government that Frisbee production improves scientists' understanding of aerodynamics and thus is important for national security. A concerned Congress votes to impose a price floor $2 above the equilibrium price. What is the new market price? How many Frisbees are sold?
11. Irate college students march on Washington and demand a reduction in the price of Frisbees. An even more concerned Congress votes to repeal the price floor and impose a price ceiling of $1 below the former price floor. What is the new market price? How many Frisbees are sold?