Part A – Market Forces of Demand and Supply
1. Illustrate and explain the following quote using the supply and demand model:
“The rising cost of building materials for new homes has increased prices for older homes”.
Required: TWO diagrams: one showing what is happening in the market for new homes, and the other showing what is happening in the market for older homes.
2. Large cities, such as Toronto, have a growing problem with smog and traffic congestion. If municipal leaders in Toronto wanted to reduce these problems, how could this be achieved by lowering the price of a substitute? How could it be achieved by raising the price of a complement (assume the City of Toronto does not have authority to increase the tax on gasoline)?

Part B – Elasticity and Its Application
1. Expo 2000, the world’s fair for that year, was held in Hanover, Germany. Tickets to Expo 2000 were initially priced at $12 each which generated sales of 60,000 tickets per day, well below the organizers’ expectations. During the second week of the fair, the organizers responded by setting a special $5 price for Wednesday tickets. Attendance on that day jumped to 100,000.
a. Use the mid-point formula to calculate the price elasticity of demand for Expo 2000 tickets. Is demand elastic or inelastic?
b. If the organizers of Expo 2000 were interested in increasing total revenue from ticket sales, should they have increased or decreased the ticket price? Explain.
c. If the organizers wanted to increase attendance by 25% per day, by how much would they have had to lower ticket prices?

2. Consider the following statement: (5 marks)
“If the demand for milk rises, in the long run milk-drinkers will be better off if the supply of milk was elastic rather than inelastic”.
a. Do you agree or disagree? Explain and illustrate your answer by drawing TWO diagrams: one showing the short-run effects of a higher demand for milk and another showing the long-run effects. (Assume that the price elasticity of demand does not change.)
b. Provide 2 reasons why the supply of milk might become more elastic over time?

3. What would happen to the price elasticities in each of the following cases? Explain your answers.
a. Price elasticity of supply of lawnmowers over the span of one year, compared to over the span of one week over the summer.
b. Price elasticity of demand for copying and binding services if your work presentation was due next month, compared to if it was due in three hours.able permit system?

Part A – Market Forces of Demand and Supply&nbsp; &nbsp; 1. Illus...

Part A – Market Forces of Demand and Supply 1. Illus...