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Unformatted text preview: ange in the quantity supplied, 62
competitive market, 54
demand, 55 demand curve, 56
equilibrium price, 64
equilibrium quantity, 64
inferior good, 58
law of demand, 55
law of supply, 60
money price, 54
normal good, 58 quantity demanded, 55
quantity supplied, 60
relative price, 54
speculative bubble, 68
supply curve, 60 9160335_CH03_p053-080.qxd 6/22/09 8:56 AM Page 77 Problems and Applications PROBLEMS and APPLICATIONS 77 ◆ Work problems 1–13 in Chapter 3 Study Plan and get instant feedback.
Work problems 16–28 as Homework, a Quiz, or a Test if assigned by your instructor. 1. William Gregg owned a mill in South Carolina.
In December 1862, he placed a notice in the
Edgehill Advertiser announcing his willingness
to exchange cloth for food and other items.
Here is an extract:
1 yard of cloth for 1 pound of bacon
2 yards of cloth for 1 pound of butter
4 yards of cloth for 1 pound of wool
8 yards of cloth for 1 bushel of salt
a. What is the relative price of butter in terms of
b. If the money price of bacon was 20¢ a pound,
what do you predict was the money price of
c. If the money price of bacon was 20¢ a pound
and the money price of salt was $2.00 a
bushel, do you think anyone would accept
Mr. Gregg’s offer of cloth for salt?
2. The price of food increased during the past year.
a. Explain why the law of demand applies to
food just as it does to all other goods and
b. Explain how the substitution effect influences
food purchases and provide some examples of
substitutions that people might make when
the price of food rises and other things remain
c. Explain how the income effect influences
food purchases and provide some examples
of the income effect that might occur when
the price of food rises and other things remain the same.
3. Place the following goods and services into pairs
of likely substitutes and into pairs of likely complements. (You may use an item in more than
one pair.) The goods and services are
coal, oil, natural gas, wheat, corn, rye, pasta,
pizza, sausage, skatebo...
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