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problem4S06Key

problem4S06Key - ECON 303 Spring 2006 Davis Problem Set#4...

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ECON 303 Spring 2006 KEY Davis Problem Set #4. Equilibrium Analysis. 1. Consider the market for “popcorn crisps” a new product that you prepare fresh (like popcorn) but that has the look and feel of a potato chip. a. What relationship should characterize the relationship between the price of popcorn crisps and the number of packages sold per month? Why? Relationship: _ Inverse ___________________________ Reason: __ Diminishing Marginal Utility ______________ b. What relationship should characterize the relationship between the price of popcorn crisps and the number of packages produced per month? Why? Relationship: _ Direct ____________________________ Reason: __ Law of Diminishing Returns (Crowding) _____________ c. Suppose that Crisp-Makers of America, Local #458, a trade union that manufactures the crisps, successfully negotiates a wage increase. Will this affect the supply of or the demand for the crisps. How would the curve be affected? Supply / Demand (circle one). Direction of adjustment : __Supply will shift up and in __ d. Relative to the initial equilibrium, identify the price and/or quantity adjustment. What
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