1. For each of the following markets, indicate whether the stated change causes a shift in the supply curve, a shift in the demand curve, a movement along the supply curve, or a movement along the demand curve.
  2. The housing market: Consumer incomes fall.
  3. The tea market: The price of sugar goes down.
  4. The coffee market: A freeze in Columbia severely damages the coffee crop.
  5. The coffee shop market: The number of coffee shops increase.
  6. The peanut market: A drought lowers supply.

 

  1. Determine which of the following four sentences use the terminology of the supply and demand correctly.
  2. The price of bicycles rose, and therefore the demand for bicycles went down.
  3. The demand for bicycles increased, and therefore the price went up.
  4. The price of bicycles fell, decreasing the supply of bicycles.
  5. The supply of bicycles increased, and therefore the price of bicycles fell.

 

  1. Consider the following supply and demand model of the world tea market (quantity is in billions of pounds)

 
 
 

  1. Is there a shortage or a surplus when the price is $0.38? What about $0.34?
  2. Graph the supply and demand curves and show where the equilibrium price and quantity are on the graph.
  3. If there is a surplus (excess supply) or a shortage (excess demand) at a price of $0.38, calculate its size in billions of pounds and show it on the graph.

 

  1. Bagels and cream cheese are complements because they are often eaten together.
  2. a) If the equilibrium price of cream cheese and the equilibrium quantity of bagels increase, which of the following is the most likely explanation? A fall in the price of flour or a fall in the price of milk? Explain.

 

  1. b) If the equilibrium price of cream cheese has risen while the equilibrium quantity of bagels has fallen, then which of the following is the best explanation?  An increase in the price of flour or an increase in the price of milk? Explain.