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Problem Set # 1
1. (12 points) For each statement below describing changes in the coffee market, indicate
whether the statement is true, false, or uncertain. Explain your reasoning in each case, using a
graph as a part of your answer.
0
a. If consumer income increases and coffee worker wages fall, the quantity sold of coffee
will rise and the price of coffee will fall.
0
b. If tea prices decrease and coffee worker wages increase, the quantity sold of coffee
will decrease and the coffee of tangerines will increase.
0
c. If the price of coffee processing machinery increases and there are unfavorable media
reports concerning possible harmful effects of the caffeine in coffee, both the quantity sold of
coffee and the price of coffee will fall.
2. (20 points) Assume that there are 400 identical consumers each with the following inverse
demand equation: P = 64 – 2q
d
. There are 40 identical firms each which supply the good
according to the following supply equation: q
s
= P.
1
a. Derive the equations for the aggregate demand and supply curves.
1
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 Spring '09
 danbrown
 Microeconomics

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