Homework%20II-Solutions - Middle East Technical University...

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Middle East Technical University Faculty of Economic and Administrative Sciences Department of Economics Fall 2009 Section 3 HOMEWORK II SOLUTIONS 1. Case and Fair (8th edition) Chapter 3 page 74 Question 7 (a) This sequence confuses changes in demand (shifts of the demand curve) with changes in quantity demanded (movements along a demand curve). First, a demand shift does cause price to rise. As price rises, the quantity supplied increases along the supply curve, and the quantity demanded declines along the demand curve as the market moves to reestablish equilibrium. Nothing here suggests that demand shifts back down, or that prices will fall back to their original levels. (b) This sequence confuses a change in price (per unit) with a change in total spending on meat. When price falls, the quantity demanded increases along the demand curve. Thus, the total amount spent (price × quantity demanded) depends on whether quantity demanded goes up by more than price per unit falls. Total spending could increase if demand responds
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Homework%20II-Solutions - Middle East Technical University...

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