1. The following equations represent the supply and demand for radios.
A. Which is supply?
B. What is the equilibrium price?
Q = 10P+1700
Q = 25P - 750
C. Graph supply and demand.
Suppose the Government feels sorry for radio producers and says that radios must sell for at least $90 each.
D. How many radios will be sold?
E. How many would the producers want to supply at $90?
F. Does the price floor produce a shortage or a surplus? How much is it?

2. Before compulsory recycling of cardboard many towns looked at the existing market price per ton for recycled cardboard and assumed that if the towns made recycling compulsory they would get that price per ton. Draw a short run supply and demand diagram and explain why the towns were disappointed after compulsory recycling.

However, in a few years the Japanese realized there was a large supply of used cardboard and built new plants to use the recycled cardboard. What happened to the demand for recycled cardboard? What happened to the price?

3. If individuals using medical facilities had to pay for them, there would be a downward sloping demand curve for medical care. Draw such a curve for people over 65. If you then introduced Medicare, granting free medical care for everyone over 65, what would happen to the demand curve?

4. Draw hypothetical demand and supply curves for US housing in 2002. In this one year period what would be tire likely shape of the housing supply curve? Given that interest rates fell in 2003, what happened to the demand for housing in 2003? Put that on your diagram. What happened to the price of houses?

5. A study of the sensitivity of demand to changes in prices of cigarettes showed that smokers aged 16-24 arc far more price sensitive than older smokers. In 1993, the Clinton administration suggested raising the excise tax on a pack of cigarettes by $.75. Suppose the supply of cigarettes in the relevant range is horizontal at the going price. (An excise tax would shift the supply curve up by the amount of the tax). The NBER (National Bureau of Economic Research) study predicted that a $.75 excise tax would reduce the consumption of cigarettes by about % for this ago group.
A. Diagram this information.
B. Show the loss in revenue to the tobacco industry.
C. For simplicity of comparison, assume that smokers in the 25 and over group would continue to buy the same number of cigarettes after the excise tax. In the short run, would the tobacco industry lose revenue on this group? Diagram this information.
D. What would happen to the over 25 demand for cigarettes over a period of years?
Aside: The $.75 tax was defeated, in part by the tobacco lobby, but also because the tax would fall disproportionately on the lower class as there are few smokers at the higher end of the income distribution in the US. Incidentally, the tax was not a race issue, as African Americans have the lowest group incidence of smoking throughout the income distribution.
E. In the summer of 1998, Congress was again discussing a new substantial cigarette
Tax. The tobacco companies took to the television and sponsored advertisements against the tax. The ads ended with the supposedly rhetorical question, "What does taxing working people have to do with teenage smoking?" The true answer to that question is not what the tobacco companies want to admit. From your work above, what is the answer to that question?

6.
A. Traditionally when a new company wants to sell new share? (an initial public offering), it goes to an investment banker. Based on the investment banker's estimate of demand, they would set the offer price per share. This price might be lower than the market equilibrium. The company wishes to sell 100,000 shares (in 100 share lots). Diagram this situation. Will everyone who wanted the new shares get them at the opening price?
B. Today the internet is making many real prices come closer to the perfectly
competitive equilibrium price. A company wishing to sell 100,000 shares over the internet can set a time, such as one week, during which any qualified buyer can bid for shares. At the end of the set time, the company charges everyone the price of the lowest bid the company accepts. How does this situation differ from the previous one?

MCQs (Multiple Choice Questions)

7. Which one of the following is false?
A. Monetarists believe that most inflations are caused by excessive increases in the money supply.
B. Socialism puts more emphasis on equity than efficiency.
C. Supply siders emphasize the stimulating effects of increased government spending.
D. New classical economics emphasizes the importance of rational expectations in affecting how people behave.

8. Which of the following is false?
A. Since the consumption of mineral water and birth weight are positively correlated, then giving mineral water to poor women will increase their baby's birth weight.
B. If important variables are omitted in an econometric model, an explanatory variable can appear to have a positive effect on the variable to be explained when with a better model the sign could be reversed.
C. The prediction power of an econometric model depends on past relationships among the variables holding in the future.

9. Which one of the following is not a role for government in our model of theoretical capitalism?
a. police to keep the streets safe.
b. laws to protect property rights.
c. Medicare
d. equipping an army.

10. Normally, to the extent that a government control mechanism succeeds in affecting price, it can be expected to lead to a corresponding
a. reduction in the volume of sales only if the price is forced down.
b. reduction in the volume of sales if the price is forced down and an increase in the volume of sales if the price is forced up.
c. decrease in the volume of sales whether the price is forced up or down.
d. increase in the volume of sales whether the price is forced up or down.

11. The price of fresh fish rose and the quantity sold also fell. Everything else being equal, it is consistent that:
a. consumers developed a taste for fish.
b. the price of meat rose.
c. the cost of gasoline fell.
d. the price of frozen fish for export Increased.
e. the supply of fresh fish increased.

12. The expansion of career options in business for women 18-24, along with a decline in their number, has led to a decline in the supply of nurses. At the same time, the demand for nurses has increased as rising incomes lead to more demand for health care. From these facts, the supply and demand model allows us to predict that in the new market equilibrium, (i) the price (wages) of nurses will rise and (ii) the quantity of nurses employed will fall.
a. i and ii.
b. i but not ii.
c. ii but not i.
d. neither i nor ii.

13 The demand for butter is likely to ____________when bread prices fall because bread and butter are _________.
A. increase, complements
B. remain the same, complements
C. decrease, complements
D. decrease, substitutes
E. increase, substitutes

1. The following equations represent the supply and demand for radi...