PART 1. REVIEW OF SUPPLY AND DEMAND
1. Explain and show (separately) on a graph how each of the following would affect the demand for calculators:
a. Cell phones now have a calculator function included
b. Every course begins to require use of a calculator
c. The price for a calculator falls from $20 to $7
d. Consumers' incomes increase, and calculators are a normal good
2. Explain and show (separately) on a graph how each of the following would affect the supply of calculators:
a. Technology for producing calculators gets better
b. More firms enter the calculator industry
c. The prices for calculators are expected to rise over the next month
3. Explain why an effective rent control policy has a different impact over 10 years than over 1 year. Include the ideas of demand elasticity and supply elasticity in your answer.
PART 2. CONSUMER AND PRODUCER SURPLUS
4. (a) Find the value for consumer surplus and for producer surplus in the following graph showing the market for oranges.
(b) What is the value of the total surplus to society? Is this the largest possible surplus? Explain.
5. Problems #4 and #5 on page 152 (Problems and applications) at the end of chapter 7.
Book problem #4 end of chapter 7
It is a hot day, and Bert is thirsty, here is the value he places on each bottle of water:
Value of first bottle $7
Value of second bottle $5
Value of third bottle $3
Value of fourth bottle $1
a- From this information, derive Bert's demand schedule. Graph his demand curve for bottled water
b- If the price of a bottle of water is $4, how many surplus does Bert get from his purchases? How Bert's consumer surplus in your graph.
c- If the price falls to $2, how does quantity demanded change? How does Bert's consumer surplus change? How these changes in your graph.
6. Problem #3 on page 190 (Problems and applications) at the end of chapter 9.
Book problem #5 end of chapter 7
Ernie's owns a water pumps. Because pumping large amounts of water is harder than pumping small amounts, the cost of producing a bottle of water rises as he pumps more. Here is the cost he incurs to produce each bottle of water:
Cost of Frist Bottle $1
Cost of second bottle $3
Cost of third bottle $5
Cost of fourth bottle $7
a- From information, derive Ernie's supply schedule. Graph his supply curve for bottled water
b- If the price of a bottle of water is $4., how many producer surplus does Ernie get from these sales? Show Ernie's producer surplus in your graph
c- If the price rises to $6, how does Ernie's producer surplus change? Show these changes in your graph.
7. Assess the following statement about a nation which is an importer:
"The greater the elasticity of demand, the greater the gains from trade."
Use graphs to demonstrate your response. (Tip: compare 2 graphs, one where demand is inelastic, one where demand is elastic. Keep all other elements the same.
8. The economy shown below opens itself to trade. (a) Will everyone in the economy benefit? Compare to your answers in Question #4. Explain in words.
(b) If the nation imposes a tariff of $1 in the market, what is the impact on consumer surplus and produces surplus?On government revenue? Is there deadweight loss in this case?
