1001majorch3

# 1001majorch3 - ECON1001AB Dr.KafuWONG KKL925 CliffordCHAN...

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ECON 1001 AB Introduction to Economics I Dr. Ka-fu WONG Third week  of tutorial sessions KKL 925 Clifford CHAN KKL 1109 [email protected]

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Covered and to be covered Covered last week Dr. Wong finished kf002.ppt and covered up to #68 of kf003.ppt You should have at least read up to Chapter 3 Supply and Demand: An Introduction . If not, please press hard on them. We are getting to the first midterm! Start reading chapter 3 and 4 Your first midterm will cover chapter 1 – chapter 4 To be covered in the tutorial sessions this week Problems in chapter 3: #1, #3, #5, #7, #9, #11 and #13 You are advised to work on the even ones as well
Problem #1, Chapter 3 State whether the following pairs of goods are complement or substitutes. (If you think a pair is ambiguous in this respect, explain why.) Tennis courts and squash courts Squash racquets and squash balls Ice cream and chocolate Cloth diapers and paper diapers Substitutes- goods that can be used / consumed interchangeably, i.e. Coca Cola and Pepsi Complements- goods that have to be used / consumed at the same time, i.e. Computer hardware and software

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Solution to Problem #1 (2) Tennis courts and squash courts Substitutes- you cannot play tennis in a squash court and you cannot play squash court in a tennis court. Two kinds of sport venue Squash racquets and squash balls Complements- to play squash, you will need both Ice cream and chocolate Substitutes for some people who regard them as desert Complement for some people who want to have chocolate (chips) on top of the ice cream Cloth diapers and paper diapers Substitutes- just different materials! We can use them interchangeably
Problem #3, Chapter 3 Indicate how you think each of the following would shift demand in the indicated market Incomes of buyers in the market for Adirondack vacation increase Buyers in the market for pizza read a study linking hamburger consumption to heart disease Buyers in the market for CDs learn of an increase in the price of audiocassettes (a substitutes for CDs) Buyers in the market for CDs learn of an increase in the price of CDs Demand shifts up (right)- increase in demand at any given level of price Demand shifts down (left)- decrease in demand at any given level of price

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Solution to problem #3 (1) Incomes of buyers in the market for Adirondack vacations increase The demand curve will shift up (right) Assume vacations are a normal good. Buyers will increase their consumption in vacations when their incomes increase. Buyers in the market for pizza read a study linking hamburger consumption to heart disease The demand curve will shift up (right) Pizza and hamburger are both junk food and can be consumed interchangeably. If a study shows proven connection between hamburger consumption and heart disease, people will consume less pizza for now. People will probably switch to consume pizza going forward.
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1001majorch3 - ECON1001AB Dr.KafuWONG KKL925 CliffordCHAN...

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