106_hw_1

106_hw_1 - Econ 106 Managerial Economics Homework 1 Summer...

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Econ 106 Managerial Economics Homework 1 Summer 2011 Due date: Fri Aug 12 at the beginning of class. Homework guidelines can be found at http://econ.ucsb.edu/~benelli/homework_guidelines.htm 1. As a result of increased tensions in the Middle East, oil production is down by 1.21 million barrels per day – a 5 percent reduction in the world’s supply of crude oil. Graph and briefly explain the likely impact of this event on the market for gasoline, the market for small cars, and the market of SUV’s. 2. Some have argued that higher cigarette prices do not deter smoking. While there are many arguments both for and against this view, some find the following argument to the most persuasive of all: “The laws of supply and demand indicate that higher prices are ineffective in reducing smoking. In particular, higher cigarette prices will reduce the demand for cigarettes. This reduction in demand will drop the equilibrium price. Since prices fall when demand shifts,
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106_hw_1 - Econ 106 Managerial Economics Homework 1 Summer...

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