Q1. Find out the flaw in the following forecast: In year 2006 we predict that the demand curve for hand held PC’s will carry on to shift leftward, that will tend to lower the price and quantity. However, with a lower price, supply will as well reduce, shifting the supply curve to the left. The leftward shift of the supply curve tends to increase price and lower quantity sold. We conclude that as 2006 carries on, quantity sold will reduce but the price of had held pc’s might either increase or drop what is the mistake in logic in the forecast? Describe.

Q2. Assume that you own a barbershop or saloon. You are considering lowering the price of either haircuts or the alcoholic drinks. The actual elasticity of demand for the haircuts is 1.36 and for alcoholic drinks is 0.62. Which price must you lower? Describe.

Q3. Tariff simply a tax on the imports. Use our model of the excise tax (with proper diagram) to describe why domestic firms request that tariff? Consider both the domestic and foreign country in your answer.