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Review questions
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EASY
1 The price and quantity data for toasters is given in the table below.
Price
Quarty
Cto
12
E14
$16
C18
Demanded
10
7
6
5
Supplied
3
5
6
7
What is the excess supply or demand when the price is (a) $12 and (b) $20? Describe the price
movements induced by positions (a) and (b).
2 Given that bread and toasters are complements, what happens to the demand curve for toasters if
the price of bread rises? Show in a supply-demand diagram how the equilibrium price and
quantity of toasters change.
3 How is the demand curve for toasters affected by the invention of the toaster oven if people
prefer this new way of toasting? What happens to the equilibrium quantity and price of toasters?
4 You are a sheep farmer. Give three examples of a change that would reduce your supply of wool.
Did you use a fall in the price of wool as one of your examples? Is it a valid example?
5 Goods with snob value are demanded because they are expensive. Does the demand curve for
such goods slope upwards?
MEDIUM
6 The market demand for milk is Q" = 16 - 2P, while the market supply is Q" =-2 + P. Find the
equilibrium quantity and price in the market for milk. Show your solution graphically.
7 Supply and demand data for toasters are shown below. Plot the supply curve and demand curve
and find the equilibrium price and quantity.
Price
Quantity
C14
C16
[18
E20
Demanded
10
5
Supplied
3
5
6
7
8 Consider the following market demand Q = 50 - 2P + Y, where Y denotes consumers' income.
Suppose that Y = 10 and then plot the market demand using the following price levels:
P
3
9
12
15
Now suppose that consumers' income increases to Y 5 20. Plot the market demand using the
price levels in the table above. How has the rise in income affected the market demand?
9 Given the following market demand, Q" = 120 - 2P, find the consumers' surplus when P = $20
and P = E15, Calculate a demand schedule and then draw a graph showing consumer surplus.
10 Given the following market supply, Q' = 210 - SP, find the producers' surplus when P = 6 and P
= B. Calculate a supply schedule and then draw a graph showing producer surplus.
11 Consider the market for safe cities. Someone knocks on your door and asks if you wish to
purchase a reduction in crime by subscribing to an enhanced city-wide police force. Your city
has 1 million residents. (a) What happens if you do not subscribe but all your fellow city
dwellers do? (b) What happens if you subscribe but nobody else subscribes? (c) What does this
tell you about the possibility of a market for public goods such as safe cities? (d) How might
society ensure that desirably safe cities are provided?
12 Profitable speculation should stabilize financial markets - successful speculators are those who
buy when the price is below the equilibrium price and sell when it has risen, or sell when the
price is above the equilibrium price and buy when it has fallen. Why, then, are financial market
prices so volatile?
HARD
13 Essay question The UK government is discussing a change in the planning laws to allow the
building of 3 million new homes by 2020. Discuss what this is likely to mean for (a) the price of
houses for first-time buyers and (b) the demand for country houses in areas adjacent to new...
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