Question 6

Assume the market for peanut butter is initially in equilibrium.

a)Draw a demand and supply diagram to illustrate the initial equilibrium.

b)Explain and graph the impact on the peanut butter market if there is a decrease in consumer incomes?

c)What would occur to the demand for Strawberry jam? (Hint: Jam is either a substitute or compliment)

Question 7

Assume the market for gasoline is initially in equilibrium.

a) Draw a demand and supply diagram to illustrate the initial equilibrium.

b) Explain and graph the impact on the market if there is simultaneously a decrease in population and an increase in business taxes. (Hint: neither demand nor supply dominate)

Question 8

Discuss with graph the effect of a:

a)price ceiling

b)price floor.

(Hint: draw supply and demand with a price floor and tell me if the price floor is effective above or below the equilibrium price. Do the same with a price ceiling. Also show on the graph where the equilibrium price and quantity are. Do one graph for a ceiling and one graph with a floor, along with the explanation described above)

Question 9

Define price elasticity of demand. What does it mean if the coefficient of price elasticity of demand is less than one? Define price elasticity of supply and what does it mean if the coefficient is greater than one? Draw graphs for each elasticity and be sure to draw the correct slope (steeper or flatter slope)

Question 10

Explain why the price elasticity of demand for carrots is different than the price elasticity of demand for cigarettes. Use discussion and graph to complete the question.

Question 11

Suppose income increases from $48,000 to $52,000 and the quantity of Kraft macaroni increased from 156 to 164 units per week. a) What is the income elasticity of demand for macaroni? b) What does this suggest about the product? Hint: what does the coefficient mean?

Question 12

Suppose that the price of President's Choice macaroni and cheese decreased from $9 to $7 per case, and at the same time, the quantity of Kraft macaroni and cheese dropped from 192 to 128 cases. a) What is the cross-elasticity of demand between the two products? b) What is the relationship between the two products?

Question 13

Define the following with discussion and formula if applicable

a) Marginal utility

b) Law of diminishing utility

c) Substitution effect

d) Income effect

Question 14

a) Using graph and explanation. Draw, label and explain consumer surplus. On your graph label the area that is consumer surplus.

b) Discuss and explain what price discrimination means. Give examples and ways that firms can price discriminate.