Homework 2

Micro

Due Monday, October 12

 

(1)   What is one factor that would cause the supply curve to shift to the right?

 

(2)   Answer problem 2a, b, and c on page 90.

 

(3)   Answer problem 3a and b on page 90.

 

(4)   Answer question 7a on page 91.

 

(5)   Show the impact that an increase in the gas tax would have on the gas market.  Draw a supply and demand curve for gas and then show the impact of the tax.  (Hint: it is easiest to show the impact of a tax by shifting the supply curve rather than the demand curve.)  Show the impact on price and quantity of gas.

 

(6)   Suppose that (a) it is reported that coffee helps students retain information and (b) the cost of growing coffee beans rises. Draw a supply and demand graph to show the impact on price and quantity. What happens to price? What happens to quantity? (Be careful with the quantity answer.)

 

(7)   What is a price floor?  Who benefits from a price floor?  What is one cost of a price floor?

 

(8)   Answer question 5c on page 140.

 

(9)   If you charge a price of $10 you will sell 100 units.  If you raise your price to $12 you will sell 70 units. 

 

            (a) Calculate the price elasticity.  Show your work.

 

            (b) Is demand elastic or inelastic?

 

            (c) What happens to total revenue?

 

            (d) Should you raise your price in this example?  Explain.