1) Behrooz is the manager of an upscale department store. Last month, in an attempt to stimulate sales, he reduced the price of his top-of-the line luxury women's designer suits. To his surprise, although he sold higher number of suits, the dollar sales on this item actually declined. Explain why this might happen.
2) Briefly define the Laws of Demand and Supply and how these Laws can answer fundamental economic questions.
3) Except prices through a free market, what other methods can you think of for allocation of resources?
4) It is a hot sunny summer afternoon in Las Vegas. After a long walk, you are very thirsty and are willing to pay $5 for a bottle of icy cold water. A street vendor offers you a bottle of water for $2 and you gladly buy it. You gained ..............of $......in this transaction.
5) Shagi Book Publishing Company faces the following demand and supply schedule:
Quantity demanded Price Quantity supplied
50,000 $100 1,200,000
100,000 $90 1,000,000
200,000 $70 800,000
300,000 $60 600,000
400,000 $50 400,000
500,000 $40 300,000
600,000 $30 200,000
700,000 $20 100,000
A) What is the equilibrium price and quantity in the market represented by the above market?
B) In the market represented by the table above, what would the market experience if the price ceiling of $20 per book were imposed?
C) In the same market, what would the market experience if a price floor of $90 per book were imposed?
D) If the price ceiling and price floor are removed, how the shortage and excess will be corrected?
6) Determine the effect of each one of the following events on demand, supply, price, quantity demanded and quantity supplied of the pertinent market.
A) A decrease in popularity of computer games for laptop computer market.
B) A decrease in the wages of autoworkers for automobile market.
C) A simultaneous increase in people's income and increase in price of steel for a washing machine market.
7) Assume that a new research shows that consumption of highly concentrated vitamin B complex can reduce the chances of a heart attack. Other things the same, what do you expect to happen to the demand, supply, price, quantity demanded and quantity supplied of concentrated vitamin B complex?
8) Sometimes airlines raise ticket prices as the flight departure date approaches in the hope of increasing revenue. What is airlines' assumption with respect to the price elasticity of demand in this case?
9) Assume a commodity has income elasticity of (-2). Interpret this information.
10) Determine the effect of simultaneous occurrence of the following two events on demand, supply, price, quantity demanded and quantity supplied of laptop computers in the United States.
A) A decrease in popularity of computer games (a related product)
B) A decrease in the wages of computer assembly workers.
11) Many restaurants charge lower prices for senior citizens and children. What is this practice called and why are they doing it?
12) Define income elasticity of demand. Interpret this elasticity for a commodity that has income elasticity of -3.
13) Assume that coffee price decreases throughout the world. Ceteris paribus, what do you expect to be the short run effects on demand for coffee and tea?
14) Determine the combined effect of increase in wages of farm workers and decrease in popularity of apples on demand, supply, price, and quantity of market for apple.
15) Describe when increase in price of what a company sells will lead to its total revenue to increase? Decrease?
16) Name some of the factors that affect the price elasticity of demand for a product.
17) Assume a market in equilibrium. Now, explain how this market will come back to equilibrium if we start from a price below the equilibrium.
18) Consider the following demand and supply curves:
D = 6000 - 30 (P) + 0.8 (Y)
S = -6,000 + 150 (P) - 300 (E)
Where P is unit price in dollars, Y is average annual income per person in dollars, and E is the annual energy costs of production in dollars.
Assuming that currently Y stands at 20,000 and E = $80, determine the equilibrium price and quantity in this market.
19) Sepeedeh Manufacturing Company produces and sells an economy model lawn mower in Boston area. The current demand and supply of the lawn mower may be represented by the following relationships:
Qd = 19,000 - 30 (P)
Qs = -8,000 + 60 (P)
A) Determine the equilibrium price and quantity for this lawn mower.
B) Determine the shortage or surplus at the unit price of $400
C) Determine the shortage or surplus at the unit price of $200
20) Currently, Zohre Bus Line, Inc. offers its services between Manchester New Hampshire and Boston Massachusetts. The current one-way fare is $20 and the demand may be represented by the following relationship:
Q = 22,800 - 0.2 (I) + 0.001(Pop) - 800(P) + 12(A) + 5,000 (PG) + 35,000 (W)
where (Q) is number of one-way tickets sold per year, (P) is price per one way-ticket in dollars, (Pop) is number of people in the relevant market area, (I) is after tax annual income per household expressed in dollars, (A) is yearly advertising expenditures in dollars, (PG) is average price of a gallon of gasoline, and (W) is an index number that can assume a value of (0), when the winter is light and (1) for heavy winter.
A) The forecast for the coming winter indicates a heavy winter, determine the demand curve faced by the company where A=$3,000, I=$40,000, Pop=2,000,000 persons, and PG=$4 per gallon.
B) Calculate the quantity demanded at price of $20.
C) Other things the same, calculate the quantity of tickets sold if the household income increases to $45,000.