Problems and Applications

1- Explain each of the following statements using supply-and-demand diagrams.

1. "When a cold snap hits Florida, the price of orange juice rises in supermarkets throughout the country."
2. "When the weather turns warm in New England every summer, the price of hotel rooms in Caribbean resorts plummets."
3. "When a war breaks out in the Middle East, the price of gasoline rises and the price of a used Cadillac falls."

2- "An increase in the demand for notebooks raises the quantity of notebooks demanded but not the quantity supplied." Is this statement true or false? Explain.

3- Consider the market for minivans. For each of the events listed here, identify which of the determinants of demand or supply are affected. Also indicate whether demand or supply increases or decreases. Then draw a diagram to show the effect on the price and quantity of minivans.

1. People decide to have more children.
2. A strike by steelworkers raises steel prices.
3. Engineers develop new automated machinery to produce minivans.
4. The price of sports utility vehicles rises.
5. A stock market crash lowers people's wealth.

4- Consider the markets for film streaming services, TV screens, and tickets at movie theaters.

1. For each pair, identify whether they are complements or substitutes:
   • Film streaming and TV screens
   • Film streaming and movie tickets
   • TV screens and movie tickets
2. Suppose a technological advance reduces the cost of manufacturing TV screens. Draw a diagram to show what happens in the market for TV screens.
3. Draw two more diagrams to show how the change in the market for TV screens affects the markets for film streaming and movie tickets.

5- Over the past years, technological advances have reduced the cost of computer chips. How do you think this has affected the market for computers? For computer software? For typewriters?

6- Using supply-and-demand diagrams, show the effects of the following events on the market for sweatshirts.

1. A hurricane in South Carolina damages the cotton crop.
2. The price of leather jackets falls.
3. All colleges require morning exercise in appropriate attire.
4. New knitting machines are invented.

7- Ketchup is a complement (as well as a condiment) for hot dogs. If the price of hot dogs rises, what happens in the market for ketchup? For tomatoes? For tomato juice? For orange juice?

8- The market for pizza has the following demand and supply schedules:

Price	Quantity Demanded	Quantity Supplied
$4	135 pizzas	26 pizzas
5	104	53
6	81	81
7	68	98
8	53	110
9	39	121

1. Graph the demand and supply curves. What are the equilibrium price and quantity in this market?
2. If the actual price in this market wereabovethe equilibrium price, what would drive the market toward the equilibrium?
3. If the actual price in this market werebelowthe equilibrium price, what would drive the market toward the equilibrium?

9- Consider the following events: Scientists reveal that eating oranges decreases the risk of diabetes, and at the same time, farmers use a new fertilizer that makes orange trees produce more oranges. Illustrate and explain what effect these changes have on the equilibrium price and quantity of oranges.

10- Because bagels and cream cheese are often eaten together, they are complements.

1. We observe that both the equilibrium price of cream cheese and the equilibrium quantity of bagels have risen. What could be responsible for this pattern: a fall in the price of flour or a fall in the price of milk? Illustrate and explain your answer.
2. Suppose instead that the equilibrium price of cream cheese has risen but the equilibrium quantity of bagels has fallen. What could be responsible for this pattern: a rise in the price of flour or a rise in the price of milk? Illustrate and explain your answer.

11- Suppose that the price of basketball tickets at your college is determined by market forces. Currently, the demand and supply schedules are as follows:

Price	Quantity Demanded	Quantity Supplied
$4	10,000 tickets	8,000 tickets
8	8,000	8,000
12	6,000	8,000
16	4,000	8,000
20	2,000	8,000

1. Draw the demand and supply curves. What is unusual about this supply curve? Why might this be true?
2. What are the equilibrium price and quantity of tickets?
3. Your college plans to increase total enrollment next year by students. The additional students will have the following demand schedule:

Price	Quantity Demanded
$4	4,000 tickets
8	3,000
12	2,000
16	1,000
20	0

1. Now add the old demand schedule and the demand schedule for the new students to calculate the new demand schedule for the entire college. What will be the new equilibrium price and quantity?