Download Economics Supply and Demand Review Sheet

Economics Supply and Demand Review Sheet
Key concepts, including (but not limited to): demand, supply, quantity
demanded/supplied, diminishing marginal utility, substitution and income effects,
substitutes and complements, elasticity, non-price determinants of demand and supply,
normal and inferior goods, cross-price and income elasticity of demand (you will not
need to use the equations just know what these measure), total revenue test, search and
menu costs, determining a firm’s level of production (costs, revenue, profit)
1. (A) Draw generic market graphs (an X) for the following products: milk, ice cream,
cookies, and cake. (milk is an input of ice cream; cookies and milk are complimentary
goods; cookies and cake are substitute goods).
(B) There is an outbreak of mad cow disease that reduces the supply of milk in the US.
Show the impact of this on all four markets.
2.Wal-Mart sells inferior goods with a high-income elasticity of demand as well as high
cross-price elasticity of demand with Target. Explain why (a) Wal-Mart may actually
make more profit in a recession (when consumer income is reduced) and (b) why WalMart has been so opposed to their workers joining unions or providing their workers with
health care benefits.
3. Draw individual firm graphs (the “limboing J-curve” or Nike-swoosh curve) for the
current situation of Toyota and GM. Show on your graph the effect that universal health
care (which would eliminate GM’s benefit costs) would have.
4. (A) Draw a generic market graph (an X) for a product and indicate the areas of
consumer and producer surplus. (B) Draw a market graph for a product with a positive
externality. (C) Draw a market graph for a product with a negative externality. (D)
Explain how externalities lead to market failures/inefficiencies.