1)

a) What is the impact on equilibrium price and quantity of an increase in demand?

b) What is the impact on equilibrium price and quantity of a decrease in supply?

c) If there is a shortage of a good, what is the relationship between the equilibrium price and the actual price of the good?

2)

a) Show graphically the impact on the equilibrium price and quantity of a decrease in the number of producers of a good.

b) Show graphically the impact on the equilibrium price and quantity if consumer tastes for a good increase.

c) Show graphically the impact on the equilibrium price and quantity if the price of a substitute decreases.

3) For each of the following, compute the price elasticity of demand. Is the demand elastic, unit elastic or inelastic?

a) When the price of soybeans increases from $2/pound to $4/pound, the quantity demanded falls from 50 million pounds to 25 million pounds.

b) When the price of cinnamon falls from $5/pound to $4/pound, the quantity demanded increases from 3 million to 5 million.

4) In each of the following cases, what will be the impact on total revenue?

a) The price elasticity of demand for a good is 0.3 and the firm raises the price by 10%.

b) The price elasticity of demand for a good is 1.4 and the firm lowers the price by 10%.

c) The price elasticity of demand for a good is 1 and the firm raises the price by 10%.