1. Explain the law of demand. Why does a demand curve slope downward? What are the determinants of demand? What happens to the demand curve when each of these determinants changes? Distinguish between a change in demand and a change in the quantity demanded, noting the cause(s) of each.
2. KEY QUESTION What effect will each of the following have on the demand for product B?
a. Product B becomes more fashionable.
b. The price of substitute product C falls.
c. Income declines and product B is an inferior good.
d. Consumers anticipate the price of B will be lower in the near future.
e. The price of complementary product D falls.
f. Foreign tariff barriers on product B are eliminated.
3. Explain the following news dispatch from Hull, England: "The fish market here slumped today to what local commentators called 'a disastrous level'—all because of a shortage of potatoes. The potatoes are one of the main ingredients in a dish that figures on almost every café-menu—fish and chips."
4. Explain the law of supply. Why does the supply curve slope upward? What are the determinants of supply? What happens to the supply curve when each of these determinants changes? Distinguish between a change in supply and a change in the quantity supplied, nothing the cause(s) of each.
5. KEY QUESTION What effect will each of the following have on the supply of product B?
a. A technological advance in the methods of producing product B.
b. A decline in the number of firms in industry B.
c. An increase in the prices of resources required in the production of B.
d. The expectation that the equilibrium price of B will be lower in the future than it is currently.
e. A decline in the price of product A, a good whose production requires substantially the same techniques and resources as does the production of B.
f. The levying of a specific sales tax on B.
g. The granting of a 50-cent per-unit subsidy for each unit of B produced.
6. "In the corn market, demand often exceeds supply and supply sometimes exceeds demand." "The price of corn rises and falls in response to changes in supply and demand." In which of these two statements are the terms supply and demand used correctly? Explain.
7. KEY QUESTION Suppose the total demand for wheat and the total supply of wheat per month in the Winnipeg grain market are as follows:
Thousands Thousands Surplus (+)
of bushels Price per of bushels or demanded bushel supplied shortage (-)
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