1. Apples and oranges are substitutes. A freeze in Florida destroys most of the orange crop. What would you expect to happen to the market (price and quantity) for each of the following:
(Hint: Use the demand curve and supply curve to draw conclusion with respect to the impact on the price and quantity following the freeze).
a. Oranges?
b. Apples?
c. Orange juice?

2. Suppose market demand and supply are given by Qd = 30 - 3P and QS = 5 +2P.
a) Solve for the equilibrium price and quantity. Show your work!
b) Draw the demand and supply curve and show the equilibrium values obtained in part a)
Show Work!

3. In a competitive market, the market demand is Qd = 96 –10P and the market supply is Qs = 14p. A price ceiling of $5 will result in a shortage of
36 units 24 units
16 units None of the above
Show your work! Using market demand and Market supply diagram!

4. Graphically, a report indicating the health defects from consuming extra ounces of whole grains per day increases the chances of cancer by 30% will cause the demand curve for grains to:
a. Shift rightward c. Shift leftward
b. Become flatter d. Become steeper
Show your work using the tools of demand and supply curves!

5. Consumer surplus is the difference between the
a. Market price and the minimum price required to induce production
b. The maximum willingness to pay of consumers and the market price
c. Quantity demanded and the quantity supplied at the market price
d. Full economic price and the minimum price required to induce production
Show your work!

a) What is scarcity? Can it be eliminated? Explain   
b) Why does scarcity exist? How can it be resolved? Explain
c) Is there such a thing as a free lunch? Yes No. Explain
7. What is market equilibrium? Does the market always achieve equilibrium? If so, why? If not, why? Explain. Illustrate with examples and graphs where necessary

8. The movement along a given demand curve is the same as a shift in the demand curve.
True   False. Explain

9. If the income elasticity for designer jeans is 1.5, a 10% increase in income will lead to a
a. 15% rise in demand for designer jeans.
b. 0.15% drop in the demand for designer jeans.
c. 0.15% rise in demand for designer jeans.
Show your work

10. Which of the following increases the potential for sustainable long-run industry profits?
a. Entry. (Barriers to)
b. The availability of multiple substitutes.
c. Absence of complements.

11. If firms in the pizza industry are earning negative economic profits, which of the following will most likely occur in the future?
a. Some firms will exit the market.
b. The economic profits of the firms in the industry will rise.
c. The market price for pizza will rise.
d. All of the responses are correct.
Explain your choice

12. You are the manager of a popular hand bag company. You know that the advertising elasticity of demand for your product is 2.5. How much will you have to increase spending on advertising in order to increase demand by 4%?
a. 0.16%.
b. 1.6%.
c. 2%.
d. 10%.
Show your work

a) What is meant by price elasticity of demand. List and explain three factors of price elasticity of demand.
b) Why are managers interested in the concept of consumer surplus?

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a) What is scarcity? Can it be eliminated? Explain   
Scarcity in general probably cannot be eliminated because it is the result of infinite human wants that are greater than the finite resources that are wanted.
b) Why does scarcity exist? How can it be resolved? Explain
Scarcity exists because of the definition (above) and human nature. Economics as a field deals with how to make the best use of scarce resources.
c) Is there such a thing as a free lunch? Yes No. Explain
NO: The theory/doctrine that there is no free lunch is useful because in most cases, even if something appears to be free, there are usually hidden or not obvious and explicit costs. Marketing is a good example whereby a potential consumer may be offered a product for free, but there is always a catch, such as giving the company contact information so that they can direct future advertising efforts toward you. Most such doctrines always have an exception. Charity may qualify as an exception to this rule. Pure charity is supposed to involve giving to those in need without any expectation of receiving anything in return. However, in the US, charitable donations are tax deductible so that even those receiving charity are actually receiving less in public services since taxes are reduced. Hence, there is no free lunch!...
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