Q1. For each scenario, identify how the market for steak is affected (does the demand curve and/or supply curve shift to the right or left)?

Background

Topic: Shifts in Demand and Supply Curves

This question tests your understanding of how external factors (like prices of related goods, population, income, and advertising) affect the demand and supply curves in a market.

Key Terms:

• Demand Curve: Shows the relationship between price and quantity demanded.

• Supply Curve: Shows the relationship between price and quantity supplied.

• Shift to the Right: Indicates an increase (in demand or supply).

• Shift to the Left: Indicates a decrease (in demand or supply).

Step-by-Step Guidance

1. For each scenario, determine if the factor affects demand or supply. For example, a change in the price of a substitute or complement usually affects demand.

2. Consider whether the effect is positive (increase) or negative (decrease). For instance, an increase in population generally increases demand.

3. Think about the direction of the shift: right (increase) or left (decrease).

4. Apply these principles to each scenario (a–e) and decide which curve shifts and in which direction.

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Q2. For each scenario, identify how the market for coal is affected (does the demand curve and/or supply curve shift to the right or left)?

Background

Topic: Shifts in Supply and Demand

This question tests your ability to analyze how changes in production costs, technology, and regulations affect the supply curve in a market.

Key Terms:

• Supply Curve: Relationship between price and quantity supplied.

• Demand Curve: Relationship between price and quantity demanded.

• Production Costs: Affect supply; lower costs increase supply.

• Regulation: Can increase costs, decreasing supply.

Step-by-Step Guidance

1. For each scenario, decide if the change affects supply or demand. Most scenarios here affect supply.

2. Determine if the effect increases or decreases supply (right or left shift).

3. Apply your reasoning to each scenario (a–c).

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Q3. Demand for park visits is . If park visits are free, how many visitors will attend? How does your answer change if the park adds a $20.00 admission fee? Show using a graph.

Background

Topic: Linear Demand Functions and Price Effects

This question tests your ability to use a linear demand equation to calculate quantity demanded at different prices and to interpret the results graphically.

Key Formula:

Where:

• = quantity of park visits

• = price (admission fee)

Step-by-Step Guidance

1. Identify the demand equation and the values for (first , then ).

2. Plug into the demand equation to find the number of visitors when the park is free.

3. Plug into the demand equation to find the number of visitors with a $20 fee.

4. Draw a graph with on the vertical axis and on the horizontal axis, showing the two points you calculated.

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Q4. Demand for toy Motorola cell phones is , where is the price of Motorola cell phones, is the price of Nokia cell phones, and is consumer income. Suppose and . Draw the demand curve for Motorola cell phones. Now suppose income increases to . Draw the new demand curve in the same diagram.

Background

Topic: Multivariate Demand Functions

This question tests your ability to interpret and graph a demand function with multiple variables, and to see how changes in income affect the demand curve.

Key Formula:

Where:

• = quantity demanded

• = price of Motorola cell phones

• = price of Nokia cell phones

• = consumer income

Step-by-Step Guidance

1. Plug in the values and into the demand equation to simplify it.

2. Rewrite the demand equation as a function of only.

3. Repeat the process for to see how the demand curve shifts.

4. Draw both demand curves on the same graph, labeling axes and showing the shift.

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Q5. If demand for show tickets is and supply is , find the equilibrium price and quantity. How would your answer change if the supply curve shifted to due to increases in actor salaries?

Background

Topic: Market Equilibrium

This question tests your ability to find equilibrium price and quantity by setting demand equal to supply, and to analyze how a shift in supply affects equilibrium.

Key Formulas:

Step-by-Step Guidance

1. Set to find the equilibrium price and quantity.

2. Solve for (equilibrium price) and then for (equilibrium quantity).

3. Repeat the process using the new supply curve .

4. Compare the new equilibrium to the original to see how the shift affects price and quantity.

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Q6. In a competitive labor market, demand for workers is , and supply is , where is the quantity of workers employed and is the hourly wage. Suppose the government imposes a wage ceiling of $3?

Background

Topic: Price Controls in Labor Markets

This question tests your ability to find equilibrium in a labor market and to analyze the effects of a wage ceiling.

Key Formulas:

Step-by-Step Guidance

1. Set to find the equilibrium wage and quantity without a ceiling.

2. Solve for (equilibrium wage) and then for (equilibrium quantity).

3. With a wage ceiling of $3W = 3Q_DQ_S$.

4. Compare the results to see if there is a shortage or surplus of labor.

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Q7. In a competitive labor market, demand for workers is , and supply is . Suppose the government sets a minimum wage of $5$ per hour. How does this new minimum wage change the quantity of labor employed compared to the no minimum wage situation? What happens to total payments to labor (does it increase or decrease and by how much)? Will there be excess demand or excess supply?

Background

Topic: Minimum Wage Effects in Labor Markets

This question tests your ability to analyze the effects of a minimum wage on employment, total payments, and market imbalances.

Key Formulas:

Total Payments to Labor:

Step-by-Step Guidance

1. Find the equilibrium wage and quantity without a minimum wage by setting .

2. With minimum wage , calculate and .

3. Determine which quantity is actually employed (in a minimum wage scenario, employment is limited by the lower of and ).

4. Calculate total payments to labor for both scenarios.

5. Compare the results and determine if there is excess demand or excess supply.

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