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Problem Set 2 - Econ 221 Practice Problem Set 2(Chapter 3...

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Econ. 221 Practice Problem Set 2 (Chapter 3), Key 1. In 2000, Bob's Burgers charged $1.50 for a quarter-pound hamburger with all the fixin's, and sold 7,500 of them. In 2001, although Bob raised the price to $1.75, sales of quarter-pound burgers rose to 8,200. Explain why this does not represent a violation of the law of demand. A complete answer should include a graph of the data points given in the question and also what is the law of demand and why the law is not violated. Answer: Most likely, the assumption of other things constant was violated, not the law of demand. From one year to the next, any one or more of the following (among others) would have resulted in an increase in demand that could more than offset the decrease in quantity demanded that the price increase should have caused: consumer incomes might have risen; consumer tastes for hamburgers (or just eating out generally) may have increased; Bob's competitors may have raised their prices even more than Bob did; Bob may have reduced his prices on fries and cold drinks. 2. Explain the difference between the terms “supply” and “quantity supplied”. A complete answer must include a definition of the two terms and a graph to illustrate the difference between the two terms. Answer: See page 72, Figure 3-8. The text shows the difference between demand and quantity demanded; apply the same principle to “supply and quantity supplied”. For definitions, see page 73. 3. Text, Chapter 3, Question 17, Problems and Applications During the late 1990s many consumers were having their vision problems corrected by laser surgery. An article in the Wall Street Journal in early 2001 noted two developments in the market for laser eye surgery.
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