Microeconomics Homework Assignment 

PART 1:  For each of the following five questions, show in a fully and properly labeled supply and demand diagram what happens to the equilibrium price and quantity for the appropriatemarket in each case.You do not need to add any verbal comments or analysis if your diagramsare correctly labeled.  However, neatness and organization count.

1.      What will be the impact of an increase in the price of cheese on the market for pizza?

2.      An improvement in assembly line technology occurs in the automobile industry.  What will happen in the market for new automobiles?

3.      If the coffee harvest is unusually bad in a particular year due to unfavorable weather conditions (and therefore the price of coffee increases substantially), what will happen to equilibrium price and quantity in the tea market?

4.      What will be the impact on equilibrium price and quantity in the new car market if new federal safety regulations are imposed by the federal government?

5.      If the federal government subsidizes farmers to grow rice, what will happen to equilibrium price and quantity?

PART 2:  Answer the following questions and/or complete the following graphic exercises.

6.      Suppose a recent survey shows a decrease in drug use by young people. In the debate that follows, two hypotheses are put forth to explain this decrease in drug use:

• Increased police efforts have reduced the availability of drugs on the street.
• Better education has increased awareness of the dangers of drug addiction.

a.)                Use (two) supply and demand diagrams to show how each of these hypotheses could lead to a decrease in the quantity of drugs consumed. 

b.)               How could you use information about what has actually happened to the price of drugs in recent years to help you determine which of these hypotheses is more likely to be true? 

7.      Suppose that in the year 2014, the number of births was temporarily high. Use (two) supply and demand diagrams to show the effect on the market for babysitting services in both 2019 and 2029.  (HINT: 5-year-olds need babysitters. 15-year-olds can be babysitters.)