PS1_ProblemSet - AEM 4150 PRICE ANALYSIS Fall 2008 Problem...

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AEM 4150 PRICE ANALYSIS Fall 2008 Problem Set #1 This assignment is due at the beginning of class on Tuesday September 16, 2008. 1. Answer all of the following short questions. Be careful to use the appropriate terminology in each circumstance: (a) Explain the difference between an increase in supply and an increase in quantity supplied . (b) What will happen to the demand curve of a product if there is a decrease in the price of the good in question, other things being equal? Explain and then illustrate with a graph. (c) What happens to the demand curve if there is a decrease in the price of an alternative good, other things being equal? Illustrate each of the two cases we have studied in class (substitute and complement) with a graph showing what the change in demand does to equilibrium price and quantity and explain your illustration. (d) Define what is meant by own price inelastic and own price elastic (demand side). (e) True or False. Two goods are complements if an increase in the price of one leads to a decrease in quantity demanded of the other.
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