HW 1 1

#5. Other things equal, what effects would each of the following have on aggregate demand or aggregate supply? In each case use a diagram to show the expected effects on the equilibrium price level and the level of real output.

a. This particular industry has a constantly increasing cost. There will be an increase in the demand for input factors for one key reason. Every day, new companies will be introduced into this market of remodeling, economic profits being the encouraging factor. Because of this, there will be a bid up on input prices for the companies in the industry of remodeling. “When a market is characterized by a large number of small producers, the demand curve facing the manager of each individual firm is horizontal at the price determined by the

1. When the price of a product is increased 10 percent, the quantity demanded decreases 15 percent. In this range of prices, demand for this product is ( )

d. Calculate the price elasticity of demand in each market and discuss these in relation to the prices to be charged in each market.

____ 15. When two goods are related such that an increase in the price of one good decreases the quantity demanded of

Refer to Figure 6-1. Which of the following conclusions can be drawn from this figure?

6. In a monopolistic competition industry, if one firm appreciably increased its price from the existing equilibrium price, which of the following outcomes would most likely ensue?

a) Draw and properly label the demand and supply graphs (this means you must label the axes and any lines you include on the graph).

At the price of $5.00, the quantity supplied equals the quantity demanded. At a price of $7.00, the quantity demanded is 120 greeting cards and the quantity supplied is 160 greeting cards. There is a surplus of 40 greeting cards a week and the price falls. As the falls, the quantity demanded increases, the quantity supplied decreases, and the surplus decreases. The price falls until the surplus disappears. The market equilibrium occurs at a price of $5.00 and 140 cards a week so the price falls to $5.00 a greeting card.

a.) Draw and properly label the demand and supply graphs (this means you must label the axes and any lines you include on the graph).

8. Compared to a perfectly competitive industry with the same demand and cost curves, a monopoly’s price and output will be which of the following?

B) no government regulations exist. C) demand curves are perfectly horizontal. D) suppliers will supply any amount that buyers wish to buy. Answer: A 19) Once an equilibrium is achieved, it can persist indefinitely because A) shocks that shift the demand curve or the supply curve cannot occur. B) shocks to the demand curve are always exactly offset by shocks to the supply curve. C) the government never intervenes in markets at equilibrium. D) in the absence of supply/demand shocks no one applies pressure to change the price. Answer: D 20) If price is initially above the equilibrium level, A) the supply curve will shift rightward. B) the supply curve will shift leftward. C) excess supply exists. D) all firms can sell as much as they want. Answer: C 21) An equilibrium in a market is described by A) a price only. B) a quantity only. C) the excess supply minus the excess demand. D) a price and a quantity. Answer: D 3

Evaluate each of the following changes in supply and/or demand. How will each affect equilibrium price and quantity in a competitive market? Will price and quantity rise, fall, or be unchanged? Based on shifts, will the answers be indeterminate?

Figure 2 demonstrate how any change in one of the other determinants causes demand to rise or to fall by shifting the whole curve to the right or the left. Other factors that determinates of demand

Using the same amount of resources to produce two goods. Draw PPF curve and explain the reason of each question.