THE MARKET FORCES OF SUPPLY AND DEMAND

1. 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.

a. People decide to have more children.

b. A strike by steelworkers raises steel prices.

c.Engineers develop new automated machinery for the production of minivans.

d.The price of sports utility vehicles rises.

e.A stock market crash lowers people's wealth.

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

a. 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

b. Suppose a technological advance reduces the cost of manufacturing TV screens. Draw a diagram to show what happens in the market for TV screens.

c. Draw two more diagrams to show how the change in the market for TV screens affects the markets for film streaming and movie tickets.

ELASTICITY AND ITS APPLICATION

1. Define the price elasticity of demand and the income elasticity of demand.
2. If the elasticity is greater than 1, is demand elastic or inelastic? If the elasticity equals zero, is demand perfectly elastic or perfectly inelastic?
3. 5. If demand is elastic, how will an increase in price change total revenue? Explain.