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4. During 2008, the average income in China
increased by 10 percent. Compared to 2007,
how do you expect the following would change: a. The demand for beef? Explain your answer.
b. The demand for rice? Explain your answer.
5. In January 2007, the price of gasoline was
$2.38 a gallon. By May 2008, the price had
increased to $3.84 a gallon. Assume that there
were no changes in average income, population, or any other influence on buying plans.
How would you expect the rise in the price of
gasoline to affect
a. The demand for gasoline? Explain your answer.
b. The quantity of gasoline demanded? Explain
6. In 2008, the price of corn increased by 35 percent and some cotton farmers in Texas stopped
growing cotton and started to grow corn.
a. Does this fact illustrate the law of demand or
the law of supply? Explain your answer.
b. Why would a cotton farmer grow corn?
7. American to Cut Flights, Charge for Luggage
American Airlines announced yesterday that it
will begin charging passengers $15 for their first
piece of checked luggage, in addition to raising
other fees and cutting domestic flights as it grapples with record-high fuel prices.
Boston Herald, May 22, 2008
a. How does this news clip illustrate a change in
supply? Explain your answer.
b What is the influence on supply identified in
the news clip? Explain your answer.
c. Explain how supply changes.
8. Oil Soars to New Record Over $135
The price of oil hit a record high above $135 a
barrel on Thursday—more than twice what it
cost a year ago ... OPEC has so far blamed price
rises on speculators and says there is no shortage of oil.
BBC News, May 22, 2008
a. Explain how the price of oil can rise even
though there is no shortage of oil.
b If a shortage of oil does occur, what does that
imply about price adjustments and the role of
price as a regulator in the market for oil?
c If OPEC is correct, what factors m...
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