1. Assume that both the supply of bottled water and the demand for bottled water rise during the summer but that supply increases more rapidly than demand. What can you conclude about changes in equilibrium price and equilibrium quantity?

2. Will the equilibrium price of orange juice increase or decrease in each of the following situations?

a. A medical study reporting that orange juice reduces cancer is released at the same time that a freak storm destroys half of the orange crop in Florida.

b. The prices of all beverages except orange juice fall in half while unexpectedly perfect weather in Florida results in an orange crop that is 20 percent larger than normal.

3. Suppose that you are the economic advisor to a local government that has to deal with a politically embarrassing surplus that was caused by a price floor that the government recently imposed. Your first suggestion is to get rid of the price floor, but the politicians don't want to do that. Instead, they present you with the following list of options that they hope will get rid of the surplus while keeping the price floor. Identify each one as either could work or can't work.

Restricting supply. b. Decreasing demand. c. Purchasing the surplus at the floor price.

4. Use the table below to answer the questions that follow:

a. If this table reflects the supply of and demand for tickets to a particular World Cup soccer game, what is the stadium capacity?

b. If the preset ticket price is $45, would we expect to see a secondary market for tickets? Why or why not? Would the price of a ticket in the secondary market be higher than, the same as, or lower than the price in the primary (original) market?

c. Suppose for some other World Cup game the quantities of tickets demanded are 20,000 lower at each ticket price than shown in the table. If the ticket price remains $45, would the event be a sellout?

5. Briefly state the basic characteristics of pure competition, pure monopoly, monopolistic competition, and oligopoly. Into which of these market classifications does each of the following most accurately fit?

(a) a supermarket in your hometown;

(b) the steel industry;

(c) a Kansas wheat farm;

(d) the commercial bank in which you have an account;

(e) the automobile industry. In each case, justify your classification.

6. Critically evaluate and explain:

a. In monopolistically competitive industries, economic profits have competed away in the long run. Hence, there is no valid reason to criticize these industries' performance and efficiency.

b. In the long run, monopolistic competition leads to a monopolistic price but not to monopolistic profits.

7. What information does a government need if it wants to attempt to reduce a widespread negative externality like air pollution? Who, typically, is actually in possession of that information? How do markets in tradeable emissions permits solve the asymmetric information problem affecting pollution abatement efforts?

8. Distinguish between the benefits-received and the ability-to-pay principles of taxation. Which philosophy is more evident in our present tax structure? Justify your answer. To which principle of taxation do you subscribe? Why?