ECO. 201 PRINCIPLES OF MACROECONOMIS

THE LINK IS BELOW ATTACHED TO COMPLETE PROBLEMS.

NAME: ________________________________________ DATE: ____ / ____ / ____

CHAPTER FOUR PROBLEM SET

Give the best answer to each of the following questions.

1

. Draw a demand curve from the following demand table on the axes below. Label it D1. Then suppose the demander gets an increase in income and decides to buy

2

more bars at every price level. Draw this change on your demand curve. Label it D2.

Price per candy bar	Candy bars purchased each week
$ 0 . 5 0		10
0. 7 5		8
1.00							6
1.25					4
1.50								2

2. Indicate whether each of the following statements describes an increase in demand, decrease in demand, change in quantity demanded, increase in supply, decrease in supply, or change in quantity supplied in the given market.

a. Store-brand soup prices are cut, reducing sales of Campbell’s soup.

Mark

et: Campbell’s soup.

b. Coffee bean prices hit an 18-month low following a bountiful harvest. Market: coffee beans.

c. A summer heat wave leads to higher prices for bottled water. Market: bottled water.

d. Holiday clothing discounts boost clothing sales. Market: clothing.

e. Apple introduces a tinier and more powerful iPod model. Market: older iPod models.

f. The cost of pesticides increases, leading to a rise in the price of soy beans. Market: soy beans.

3

. Given the following data for individuals, draw the market demand curve and market supply curve for CDs. Assume that these are the only individuals in the entire market. Price is per CD.

3

0

0

8

6

3

2

1

6

4

3

0

0

10

7

6

4

2

0

1

2

3

4

6

2

3

3

4

6

7

0

1

2

3

5

6

1

1

2

2

3

5

Price	$8.00	$8.50	$ 9 .00	$9.50	$10.00	$10.50
Quantity demanded in units per week
Mark									3						1							0
Lynn			7
Jason			5
Erin	9
Quantity supplied in units per week
Jeff
Beth
Chris
Abby

a. What would be the equilibrium price and quantity in this market?

b. Which would there be—excess demand or excess supply—at a price of $8.00? How much? What about at a price of $10.00?

c. If the price of a CD was initially set at $9.00 but the price was allowed to adjust, would the price rise or fall? Explain your answer.

4. State the effect of the following events on equilibrium price and quantity of the market given.

a. Beetle infestation decimates tobacco crop. Market: cigars.

b. The Organization for Petroleum Export Countries raises oil export quotas. Market: gasoline.

c. Digital image albums become the rage among households while improved technology reduces the cost of producing digital cameras. Market: digital cameras.

d. Hurricanes in the Gulf coast cause gasoline supply disruptions while the summer travel season ends. Market: gasoline.

7. What is the fallacy of composition and how is it related to supply and demand analysis?