Question

1. Suppose an increase in consumers' income causes a decrease in the demand for chicken and an increase in the demand for potatoes. Which good is inferior and which is normal? How will the equilibrium price and quantity change for each good?

2. If the demand and supply curve for dishwashers are:

D = 200 – 8P, S = 32 + 6P

Where P is the price of dishwashers, what is the quantity of dishwashers bought and sold at equilibrium?

3. Markets tend toward equilibrium and, as a result, will tend to eliminate shortages and surpluses. Why?

4. What is the difference between a shift of the demand curve and movement along the demand curve? Make sure to explain what determinants can cause a shift and movement along the demand curve.

5. Explain the impact of:

a. A rent ceiling set below the equilibrium price.

b. A price floor set above the equilibrium price.

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