1)

A complement to product X has decreased in price. Explain the change(s) in the market for product X. What is predicted to happen to equilibrium price and quantity of the product X?

2)

Consider the market for automobiles (a normal good). Explain how the following changes effect the market for automobiles. There is an increase in income and the price of steel (an input for automobile production) increases. What is the predicted effect on the equilibrium price and quantity of automobiles?  Explain using Supply and Demand.

QUESTION 3

a.	Given the table below, answer the following questions

Price	Quantity Demanded Per Month	Quantity Supplied Per Month
$5	7	35
$4	15	25
$3	20	20
$2	28	15
$1	35	10

3. a. Suppose the price is currently $4. Would there be a shortage or a surplus (how much)? What would you expect to happen to price? (4 points)
4. b. Suppose the price is currently $2. Would there be a shortage or a surplus (how much)? What would you expect to happen to price? (4 points)
5. c. What is the predicted equilibrium price? Explain why. (4 points)

4

In which if the following scenarios will consumers pay a higher share of the tax? (1) If a tax is placed on gasoline or (2) if a tax is placed on bananas. Explain.

5)

Assume a demand curve for product Z with the following points. Point A is at P1 = 5 and Q1 = 10 and point B is at P2 = 9 and Q2 = 14.

a. Using the mid-point method, find the price elasticity of demand between points A and B for this product. Show your calculations.

b. Interpret the elasticity in words and explain if this product is elastic or not.

c. How much is quantity predicted to change if there is a 10% increase in price?

6)

Assume that the government has set the price in this market at $15

a. Who does this benefit? Also quantify this benefit by using consumer or producer surplus and showing your computations. (5 points)

b. Who does this harm? Also quantify this harm by using consumer or producer surplus and showing your computations.. (5 points)

c. Overall, does this benefit or harm society? What is a possible way to quantify this benefit or harm? Show the computations and interpret the result. (5 points)

QUESTION 7

a. In the absence of any tax determine the value of consumer surplus, producer surplus, and total surplus at the market equilibrium price? (6 points)

Now, suppose that the government imposes a $20 per unit tax on this market (say the tax is on producers). Determine all of the effects of this tax:

b. What is the tax revenue? (2 points)

c. What is consumer, producer, and total surplus? (6 points)

d. What is dead-weight loss? (3 points)

e. Provide an intuitive interpretation of dead-weight loss. (3 points)

What does it mean to say that in market economies the market price is used to ration goods? Why is this rationing necessary? Discuss the pros and cons of using the market price to ration goods?

Considering the cons of using the market price to ration goods, discuss alternative methods of rationing goods and compare the pros and cons of these alternative methods relative to using the market price.