1. Draw a supply and demand graph for the mountain bike market, which has an upward-sloping supply curve and a downward-sloping demand curve. Label the equilibrium price and quantity P1 and Q1, respectively. Show how a successful advertisement campaign featuring grinning teens speeding down idyllic wooded trails would affect the equilibrium price and quantity of mountain bikes; label the new equilibrium price and quantity P2 and Q2, respectively. Explain the reasoning behind any shifts in the curves.

2. Draw a supply and demand graph for computer memory chips that show, an upward-sloping supply curve and a downward-sloping demand curve. Label the equilibrium price and quantity P1 and Q1, respectively. Show how a design breakthrough that decreased the manufacturing cost of chips would affect the equilibrium price and quantity; label the new equilibrium price and quantity P2 and Q2, respectively. Explain the reasoning behind any shifts in the curves.

3. Almost half of US telephone customers still use traditional “landline” telephone services, which transmit calls through wires. Draw a supply and demand graph for landline telephone services with, an upward-sloping supply curve and a downward-sloping demand curve. Label the equilibrium price and quantity P1 and Q1, respectively. Show how a decrease in the price of a cell phone service would affect the equilibrium price and quantity of the landline service market; label the new equilibrium price and quantity P2 and Q2, respectively. Explain the reasoning behind any shifts in the curves.

4. Draw a supply and demand graph for chocolate chip scones, which have an upward-sloping supply curve and a downward-sloping demand curve. Label the equilibrium price and quantity P1 and Q1, respectively. Suppose the price of chocolate chip increase and at the same time, a new search comes out touting the health benefits of chocolate. Shade the area on your graph that represents all the points where the new equilibrium could lie. Explain what we know and what we don’t know about the new equilibrium price and quantity.

5. Draw a supply and demand graph for the college education market, which has an upward-sloping supply curve and a downward-sloping demand curve. Consider tuition to be the price of a college education. Label the equilibrium price and quantity P1 and Q1, respectively. For simplicity, assume that the education provided at each college is the same.

a.) Shade and label the areas on your graph that represent consumer surplus and the producer surplus in this market.

b.) Suppose the government imposes a price ceiling on college tuition. Use a horizontal line to indicate the level of a price ceiling that would make a difference in this market.

c.) Use vertical stripes to indicate the area on your graph that represents the consumer surplus after the price ceiling is in place.

d.) Use vertical stripes to indicate the area on your graph that represents the consumer surplus after the price ceiling is in place.

e.) Use the horizontal stripes to indicate the area on your graph that represents the producer surplus after the price ceiling is in place.

f.) Do all students benefit from a price ceiling on college tuition? Why or why not?