PP1_solutions - Practice Problems 1. Demand and Supply a) A...

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Practice Problems 1. Demand and Supply a) A new study shows that eating beef raises the risk of heart disease. What happens to the demand for beef? Assuming competitive markets show and explain the effect on equilibrium price and quantity. Demand curve shifts in. P & Q decrease. b) Coke doubles the price of a can of Coke. What happens to the demand for Pepsi? What happens to the demand for Coke? Assuming competitive markets show and explain the effect on equilibrium price and quantity. Nothing happens to the demand curve for coke. There is a movement along the demand curve for coke and less quantity of coke is demanded , For Pepsi, the demand curve for Pepsi shifts out. There is an increase in the equilibrium Q &P for Pepsi . c) 20,000 immigrants arrive into Miami and need to rent an apartment. What happens to the demand for apartments? Assuming competitive markets show and explain the effect on equilibrium price and quantity. Since demand is the horizontal sum of individual demand curves when m ore individuals are in the market, there will be a more housing demanded at each price, i.e. a n outward shift in the demand curve. P and Q both go up. d) Increased graduations of new doctors on the market for physician services. Illustrate this on the graph. Assuming competitive markets show and explain the effect on equilibrium price and quantity. Recall that the supply curve for the market is the horizontal sum of each individual firms supply curve, thus more doctors to supply services at each price leads to an outward shift of the supply curve. Q increases and P decreases. e) A technological change that reduces the cost of producing X-rays on the market for physician clinic services. Illustrate this on the graph. Assuming competitive markets show and explain the effect on equilibrium price and quantity. Technology change causes the supply curve to shift out. This leads to increase in Q and decrease in P. f) A price ceiling placed on physician fees in the market for physician services. Illustrate this on the graph.
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This note was uploaded on 12/14/2009 for the course ECON 1 taught by Professor Martholney during the Spring '08 term at University of California, Berkeley.

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PP1_solutions - Practice Problems 1. Demand and Supply a) A...

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