Name:__________________



Name:__________________ Unit 2A Review Problems

1. For the following situations, determine which curve is shifting initially (Supply or Demand) and in what direction (Shift to the right or left).

a. Several new companies enter the home computer industry

b. Consumers suddenly decide large cars are unfashionable.

c. The US Surgeon General issues a report stating that tomatoes prevent colds.

d. Frost threatens to damage the coffee crop, and consumers expect the price to rise sharply in the future.

e. The price of tea falls. What is the effect on the coffee market?

f. The price of sugar rises. What is the effect on the coffee market?

g. Tobacco lobbyists convince Congress to remove the tax paid by sellers on each carton of cigarettes sold.

h. A new type of robot is invented that will pick peaches.

i. Nintendo anticipates that the future prices of its games will fall much lower than the current price.

2. Explain whether each of the following events represents (i) a change in demand (a shift of the demand curve or (ii) a movement along the demand curve (a change in quantity demanded).

a. A store owner finds that customers are willing to pay more for umbrellas on rainy days.

b. When XYZ Telecom, a long distance telephone service provider, offered reduced rates on weekends, its volume of weekend calling increase sharply.

c. People buy more long-stem roses the week of Valentine’s Day, even though the prices are higher than at other times during the year.

d. A sharp rise in the price of gasoline leads many commuters to join carpools in order to reduce their gasoline purchases.

3. For each of the following pairs of products, state which are complements, which are substitutes, and which are unrelated.

a. Pepsi and Coke

b. Oscar Mayer hot dogs and Wonder hot dog buns

c. Jiffy peanut butter and Smucker’s strawberry jam

d. Hewlett-Packard printers and Texas Instruments hand calculators

4. The world price of coffee fell during the early 2000s, but in 2005, the price started to increase to higher levels.

a. Draw a supply and demand graph to show the equilibrium in the world coffee market in 2000.

b. During the early 2000s, countries such as Vietnam started to produce coffee and starting in 2005 coffee shops such as Starbucks started to spring up across Europe and Asia. Illustrate how these events have changed the demand for and supply of coffee.

c. Why do you think the price of coffee fell in the early 2000s and then rose?

5. For the following goods, is demand elastic, inelastic, or unit-elastic? What is the shape of the demand curve?

a. Demand by a snake-bite victim for an antidote

b. Demand by students for blue pencils

6. For each case, choose the condition that characterizes demand: elastic demand, inelastic demand, or unit-elastic demand.

a. Total revenue decrease when price increases

b. When price falls, the additional revenue generated by the increase in the quantity sold is exactly offset by the revenue lost from the fall in the price received per unit.

c. Total revenue falls when output increases.

d. Producers in an industry find they can increase their total revenues by working together to reduce industry output.

7. Pharmaceutical drugs have an inelastic demand, and computers have an elastic demand. Suppose that technological advance doubles the supply of both products (that is, the quantity supplied at each price is twice what it was.)

a. What happens to the equilibrium price and quantity in each market?

b. Which product experiences a larger change in price?

c. Which product experiences a larger change in quantity?

d. What happens to total consumer spending on each product?

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