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chapter3ans - Answer guide Ch 3 Problems(page 81 1 a pound...

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Answer guide Ch 3 Problems (page 81) 1. a. ± pound of wool trades for 1 pound of butter trades. b. Butter is 40¢ a pound. c. Yes, many people would accept Mr. Gregg’s offer. People could use $1.60 to buy 8 pounds of bacon. They could then trade this bacon with Mr. Gregg for 8 yards of cloth. Then they could trade the 8 yards of cloth for 1 bushel of salt. The salt could be sold for $2.00, which would leave a profit of $0.40. 2. a. Bottled water and health club memberships are complements in consumption because people in health clubs drink a lot of bottled water. b. French fries and baked potatoes are substitutes in consumption. c. Leather purses and leather shows are substitutes in production. d. SUVs and pickup trucks are substitutes in consumption. e. Diet coke and regular coke are substitutes in consumption and in production. f. Low-fat milk and cream are complements in production. 3. The statement is false for several reasons. First, if the demand for Internet services increases and nothing else changes, the price of Internet service will rise not fall. Second, if the price of Internet services falls, the supply of Internet services does not change. Rather, there is a decrease in the quantity supplied, that is, a movement along the supply curve rather than a shift of the supply curve. 4. a. The price of a recordable CD will rise, and the quantity of recordable CDs sold will increase. Recordable CDs and MP3 downloads are substitutes. If the price of an MP3 download rises, people will buy more recordable CDs and fewer MP3 downloads. The demand for recordable CDs will increase. The price of a recordable CD will rise, and more recordable CDs will be sold. b. The price of a recordable CD will fall, and fewer recordable CDs will be sold. Recordable CDs and iPods are substitutes. If the price of an iPod falls, more iPods will be bought. The demand for recordable CDs will decrease. The price of a recordable CD will fall, and people will buy fewer recordable CDs. c. The price of a recordable CD will rises and more recordable CDs will be sold. CD players and recordable CDs are complements. The increase in the supply of CD players will lower the price of a CD player. With CD players cheaper than they were, some people will buy CD players. The demand for recordable CDs will increase. The price of a recordable CD will rise, and people will buy more recordable CDs.
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