#1. For each case listed below, first state whether the change results in an increase or a decrease in demand, or in an increase or a decrease in supply. Second, determine the direction of change in both the equilibrium price and the equilibrium quantity.

a. The price of a substitute good increases.

b. There is a large storm that destroys many factories that produce a particular good.

c. The price of a resource used to produce the good falls.

d. A country imposes limits on immigration.

e. The price of a good is expected to decline.

#2. According to the Current Population Survey (Household Survey), civilian employment increased from 143,305,000 in December 2012 to 143,322,000 in January 2013. Yet, this same survey showed that the unemployment rate rose from 7.8% in December 2012 to 7.9% in January 2013.

Briefly explain how this can (and did) occur.

#3. In a simple economy people consume only 2 goods, food and clothing. The market basket of goods used to compute the CPI has 50 units of food and 10 units of clothing.

food clothing

2012 price $4 $10

2013 price $6 $20

a. Calculate the value of the market basket in 2012 and in 2013.

b. Using your answers to part (a) and letting 2012 be the base year, calculate the value of the CPI for 2013.

c. By what percentage did the CPI increase between 2012 and 2013? Notice that neither component of the CPI increased by this percentage. Why not?