IN CLASS EXERCISE - PROBLEMS ON DEMAND AND SUPPLY

Use demand and supply analysis to answer each of the following questions. Assume that the respective market is in equilibrium before the change takes place. Graphically analyze whether there is a movement or a shift in the appropriate curve and then determine the effect on the equilibrium price and quantity. Draw a separate diagram for each question in each market.

1. In the wheat market:

a. A new fertilizer is developed with a lower cost

b. The government imposes a new tax on wheat farmers

c. The price of wheat decreases

d. An improved method of harvesting is introduced

2. In the gasoline market:

a. There is a rumor among producers of another oil embargo which will cause prices to go up.

b. An oil embargo actually takes place

3. In the cigarette market:

a. The government increases taxes

b. Cigarette prices decrease

4. In the bagel market:

a. The price of cream cheese goes down

b. A recent health report shows bagels to be higher in fat and therefore less healthy than bread

5. In the banana market:

a. The FDA announces research results which suggest that eating 5 lbs of bananas monthly increases IQ scores by an average of 10 points.

b. What happens in the market for other fruits?

6. In the wine market, the number of new suppliers increases simultaneously with a new law requiring signs to be posted stating the health risks to pregnant women.

7. In the housing market, inflation is growing at 20% per year while a number of builders go bankrupt.

8. In the market for college professors, college enrollments increase dramatically, while loans and grants for graduate work are cut by the government.

9. In the market for crisco, a government report links the use of crisco to blood pressure.

10. In the market for mink coats:

a. Fox coats increase in price

b. The price of mink coats decreases

c. The economy goes into severe recession causing several people to be laid off.

d. The price of mink food increases.