Question

1. Suppose the U.S. economy moves out of a recession and incomes rise. What will happen to the equilibrium prices and quantities of normal goods? If price stays the same would that be equilibrium? Why or why not? What will eventually happen in the market? What happens to equilibrium price and quantity? Which quantity is affected and how do you know? Would your answer be the same if you were discussing inferior goods?

2.Draw a graph showing the impact of students returning to campus in August on the market for pizza in a college town. If price stays the same would that be equilibrium? Why or why not? What will eventually happen in the market? What happens to equilibrium price and quantity? Which quantity is affected and how do you know?

3.A new medical study reports that washing your hair everyday increases the probability of baldness. If price stays the same would that be equilibrium? Why or why not? What will eventually happen in the market? What happens to equilibrium price and quantity?   Which quantity is affected and how do you know?

4.Suppose that the government creates a new subsidy for producers of smoke detectors. If price stays the same would that be equilibrium? Why or why not? What will eventually happen in the market? What happens to equilibrium price and quantity? Which quantity is affected and how do you know?

5.Fabric is used to make dresses. If the price of fabric increases what is likely to happen to the equilibrium price and quantity for dresses. If price stays the same would that be equilibrium? Why or why not? What will eventually happen in the market? What happens to equilibrium price and quantity? Which quantity is affected and how do you know?

6.Suppose that people expect that the price of computers will fall next month. At the same time a technological advance take place in the computer industry. What happens to equilibrium price and quantity?

7.Suppose that the government impose a tax of $1 on the production of Nikes (Jordans). At the same time Nikes and Reeboks are substitutes and the price of Reeboks decrease. What happens to equilibrium price and quantity?

8.Assume that producers expect the price of orange juice to be lower in December. At the same time a new study just released states that drinking more orange juice will increase your chance of not getting cancer. What happens to equilibrium price and quantity? Which quantity is affected and how do you know?

9.Assume that VCRs and videotapes are complements. When the price of VCRs fall and the price of plastic (used to make videotapes) rise, what should happen to price and quantity of videotapes.   What happens to equilibrium price and quantity?

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1.
The equilibrium prices and quantities of normal goods go up. Prices will go up because the demand for normal goods go up as income goes up. The demand curve shifts up (or right) resulting in the equilibrium prices and quantities higher than before the income rise. The equilibrium prices and quantities of inferior goods will go down because demand curve for inferior goods go down as income goes up....

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