Assignment

1. Suppose that demand and supply of apples are described by the following equations:

P = 100 - 3Q (demand)
P = 20 + Q (supply)

Draw both of these curves (or use a spreadsheet if you want). What is the equilibrium price of apples in this market? How many apples will be sold?

2. A number of changes in the state of the world are listed below. For each, illustrate using a simple diagram, whether the demand curve for coffee shifts out, in, you slide along the curve, or it is impossible to tell how the demand curve is affected.

1. Household income rises
2. The price of tea falls
3. The Surgeon General announces new evidence of a link between high coffee consumption and heart disease.
4. The price of coffee falls.
5. Consumers expect higher coffee prices next month.
6. New "flavored coffee" is introduced, but some concerns are raised about health effects of the additives.

3. What effect (if any) will each of the following events have on the supply curve for bathtubs. Illustrate whether the supply curve shifts out, in, you slide along the curve, or it is impossible to tell how the supply curve is affected.

1. The prices of materials required in bathtub production increase.
2. There is a technological advance in the methods of producing bathtubs.
3. The price of bathtubs rise
4. Bathtubs become more fashionable.

4. Use a simple supply and demand diagram to analyze each of the following scenarios. Explain briefly. Be sure to show how both the equilibrium price and quantity change in each case.

a) The economic downturn has led to more people staying home to watch movies, rather than go to a movie theater. Show how this change in behavior affects price and quantities sold in the market for microwave popcorn.

b) Suppose that drought conditions in agricultural regions increase the costs of irrigation. How would this affect prices and quantities sold in the market for fruits and vegetables?

c) The New York Timesrecently reported on technological advances leading to an increase in the number of female cows. Female cows are valuable to farmers because they can be used to produce milk. However, while farmers now have more female cows available to produce milk, the farmers are not happy. Use a supply and demand diagram for the milk market to explain why.

5. From 1979 to 1989 in the United States, the number of working men grew 12% while the number of working women grew 29%. During this time, average wages for men fell slightly while average wages for women rose about 7%. Which of the following two explanations seems most consistent with the data?

a) Women decided to work more, raising their relative supply (relative to men).
b) Discrimination against women declined, raising the relative (to men) demand for female workers.