Unit I Free Response Questions

Directions: In answering the following questions, you should emphasize the line of reasoning that generated your results; it is not enough to list the results of your analysis. Include correctly labeled diagrams, if useful or required, in explaining your answers. A correctly labeled diagram must have all axes and curves clearly labeled and must show directional changes.Use a pen with black or dark blue ink.

2.The schedule shows the demand for and supply of Greebes. Plot the data on the

axis in the figure. Label the demand and supply curves. Answer the questions that follow.Explain your answers thoroughly.

Demand for and Supply of Greebes

Price Quantity Demanded Quantity Supplied

($ per Greebe) (millions of Greebes) (millions of Greebes)

$.15 300 100

.20 250 150

.25 200 200

.30 150 250

.35 100 300

a.What is the significance of the point at which the two curves intersect?What is its value in terms of price and quantity?

b.Explain the condition that results if the current price in the market is $0.35per Greebe. How will competitive market forces react?

c.Explainthe condition that results if the current price in the market is $0.15per Greebe. How will competitive market forces react in this case?

d.Draw, labeland explain what happens to the supply/demand curves under the following circumstances:

i.a catastrophic disruption in inputs used to make Greebes

ii.a drop in people's incomes as the result of a prolonged recession

(Be sure you label all curves and refer to the curve in your explanation and include what happens to price and quantity)