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Economics
Quiz 3
Supply and demand
1. Brittney Spears advertized Gap T-shirts. Graph the market for Gap T-shirts. Label your graph. How will this marketing
campaign affect Gap T-shirt prices and sales? Explain briefly.
2. A report is published that the pesticide Alar has very harmful health effects on apple eaters. The same report mentions
that growing conditions for apples will be unusually favorable this year. Graph markets for regular apples and organic
apples. Should consumers expect higher or lower prices this year? How are sales likely to change?
3. The State of Nevada, where prostitution is legal, imposes licensing rules that require the prostitutes to obtain an annual
license at a cost of $10,000. Graph the market for prostitute services. Do prices and sales increase or decrease in
response to the new legislation?
4. Consider the following information regarding the quantity of corn demanded and supplied per month at various prices.
Price
$0.60
$0.50
$0.40
$0.30
$0.20
$0.10
Quantity Demanded
In bushels
29,000
38.000
48,000
57,000
65,000
71,000
Quantity Supplied
in bushels
73,000
68,000
64,000
57,000
52,000
49,000
a. What are the equilibrium price and quantity?
b. Describe the state of the market (is it a surplus, shortage, equilibrium) when the price is 20 cents per bushel.
c. Given the conditions in (b) above what will happen to price, quantity demanded, and quantity supplied over time?
5.
Suppose the decline in personal incomes due to recession produced a surplus of rental housing in NYC. How will the
market rents change to eliminate this housing surplus?
6.
The average occupancy rate of NYC hotels is 80%. Is the market for hotel service in equilibrium? Are hotel prices too
high or too low relative to an equilibrium price? What can be done to increase occupancy rate?
7.
Think of one product or service. This can be something your past/ present/future employer is producing or something you
shopped for recently. Write down your product/service:
a.
Name two of its close substitutes produced by other firms.
b.
Name two of its complements.
c.
Is it a normal or an inferior good? Explain.
d.
Name two reasons (other than price of your product) why the demand for it may increase or decrease in the
future.