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Practice

Set 2 Econ 100.1


60 points Due Tuesday in class

Instructions:
1. Read Chapter 3 of our textbook.
2. Answer on a yellow pad.
3. Work individually.

I. Concepts (40 points)
1. (10 points) DEMAND
(a) (2 points) Using demand curve diagrams, show the difference between movements
along the demand curve and shifts in demand.
(b) (2 points) In two sentences, explain the difference between changes in quantity
demanded and changes in demand.
(c) (2 points) What factors cause quantity demanded to change?
(d) (2 points) What factors cause demand to change?
(e) (2 points) Create a hypothetical market demand schedule (table) for brownies and plot
the demand curve. Label your axes and curves.

Demand schedule
Price of brownies Quantity Demanded
A
B
C
D


2. (10 points) SUPPLY
(a) (2 points) Using supply curve diagrams, show the difference between movements along
the supply curve and shifts in supply.
(b) (2 points) In two sentences, explain the difference between changes in quantity
supplied and changes in supply.
(c)(2 points) What factors cause quantity supplied to change?
(d)(2 points) What factors cause supply to change?
(e)(2 points) Create a hypothetical market supply schedule (table) for brownies and plot
the supply curve. Label your axes and curves.

Supply schedule
Price of brownies Quantity Supplied
A
B
C
D


3. (5 points) MARKET EQUILIBRIUM
Combine your demand and supply curves for brownies and show the equilibrium quantity
and price.

4. (5 points) In two sentences, explain why demand curves are downward sloping, and supply
curves are upward sloping.

5. (10 points) Suppose we have a market for good X. Graphically show (using supply and
demand diagrams) AND describe in one sentence the effects of the following events on the
equilibrium price and equilibrium quantity of X.
(a) (2 points) Demand increases but supply is steady.
(b) (2 points) Demand falls but supply is steady.
(c) (2 points) Supply increases but demand is steady.
(d) (2 points) Supply falls but demand is steady.
(e) (2 points) Demand increases and supply falls.


II. Application (20 points)
6. (20 points) For each of the following scenarios, use a supply and demand diagram to
illustrate the effect of the given shock on the equilibrium price and quantity in the specified
competitive market. For each item, explain why the effect occurred in one sentence.

(a) (5 points) El Nio hits the Philippines. Show the effect in the domestic rice market.

(b) (5 points) The government introduces a tax on each bottle of soft drinks sold. The tax is
borne by beverage companies. Show the effect in the soft drinks market.

(c) (5 points) The Philippines and Ecuador are among the top banana exporters in the
world. Banana workers in Ecuador decide to go on strike. Show the effect on the global
market for Ecuadorian bananas.

(d) (5 points) Show the effect of the situation described in (c) on the global market for
Philippine bananas.


Bonus: (2 points) What is being held equal when changes in quantity demanded and quantity
supplied are being analyzed?