Problem Set 2

2.2 Which one of the following would NOT cause the demand for​ Coca-Cola to​ shift? a. The price of Pepsi-Cola increases b. A new study finds that drinking Cola causes stomach cancer c. The cost of producing Coca-Cola increases d. Coca-Cola increases its advertising expenditures by 20%

c. The cost of producing

2.13 If a 6​-percent increase in the price of corn flakes causes a 5​-percent decline in the quantity​ demanded, what is the elasticity of​ demand? Part 2 The elasticity of demand is

.83; Change in Quantity is -5 and change in Price is +6, so you divide those and get the answer.

2.7 The equilibrium is where the quantity of copper supplied equals the quantity of copper demanded. This occurs at a market price of ​$2.75 per pound and a quantity of 5.50 million metric tons per​ year, as indicated. If instead the market price were ​$1.75 per​ pound, then there would be a ________​, because a price of ​$1.75 is below the​ market-clearing price of ​$2.75 per pound. In​ particular, at a price of ​$1.75 per​ pound, the quantity demanded is ____ million metric tons per year ​(Enter your response rounded to two decimal places​) and the quantity supplied is _________ million metric tons. ​(Enter your response rounded to two decimal places.​) Part 6 This results in a shortage of __________ million metric tons per year.

1. shortage: because $1.75 is less than market clearing price of $2.75 2. 7.5; the quantity demanded is where $1.75 hits the demand curve 3. 4.5; the quantity supplied is where $1.75 hits the supply curve 4. 3; because 7.5-4.5 is 3

2.11 Demand for eggs: Q = 8000 - 2000P Supply of eggs: Q = -1500 + 3000P A) Find the​ market-clearing price and quantity for eggs. B) Now suppose the cost of producing eggs increases such that the supply curve for eggs shifts to Q=−3,000 + 3,000P. Find the​ market-clearing price and quantity for the product.

A) The​ market-clearing price is ​$1.9 (Set supply and demand equal to each other to find P) and the market-clearing quantity is 4200 million eggs. (Plug P into either supply or demand equation) B) The​ market-clearing price is $2.2 (Set NEW supply and old demand equal to each other to find P) and the market-clearing quantity is 3600 million eggs. (Plug P into NEW supply equation)

2.4 What happens to the market demand curve if consumer income increases​?

Demand curve shifts right, consumers now demand a larger quantity

2.8 Suppose the demand function​ (D) for golf clubs​ is: Q = 180 - .5P where P is the price paid by consumers in dollars per club and Q is the quantity demanded in thousands. Suppose the supply curve​ (S) for golf clubs is estimated to​ be: Q = 1.00P Calculate the equilibrium price for golf clubs and the equilibrium quantity sold. Part 2: Suppose instead that golf club producers agree to charge a price of ​$140 per club. This would result in a _____________ of _____ thousand clubs.

The equilibrium price is $120 per club. (Set demand and supply equal to each other then solve for P) The equilibrium quantity is 120 thousand clubs. (Plug in the P from the last step to either equation) surplus (because the price charged is higher than the equilibrium price); 30 (Plugin $140 for P in both demand and supply equations then subtract the two answers)

2.1 When supply increase, the supply curve...

Shifts to the right

2.3 What happens to the market supply curve if the costs of production decrease​?

Supply curve shifts right, firms now supply a larger quantity

2.6 Which one of the following would NOT occur if the market price was above the​ market-clearing price? a. Producers would begin to lower their prices to sell off excess inventory b. Consumers would bid up the price c. There would be a surplus d. Producers would want to produce and sell more than consumers would want to buy

b. Consumers would bid up the price

2.5 Suppose that unusually cold weather causes the demand curve for ice cream to shift to the left. Why will the price of ice cream fall to a new​ market-clearing level? The cold weather will

shift the demand curve to the left​, initially creating a surplus until the price falls to where quantity supplied again equals quantity demanded.