Homework #2 Questions
Market questions come in two types:
Type 1: you are given the exogenous variable change and you must shift the correct curve in the right direction and then determine the new price and quantity.
Type 2: you are given the new price and / or quantity and you must determine what exogenous variable changed to bring about that new price and / or quantity.
1a. Show on the market for milk the effect of the introduction of BGH (bovine growth hormone).
1b. Show on the market for cheese the impact of what happened in the milk market.
2. Determine on any market the effect of the following. Do each separately (on a separate graph) starting from an initial equilibrium position for each one.
a. increase in income
b. decrease in the cost of production.
c. increase in the price of a substitute good.
d. increase in the price of a complementary good.
e. an increase in technology.
f. increase in taste and preferences for the good.
3. Bread is a related good to peanut butter: show on the graph of the market for peanut butter, the impact on the price and quantity from an increase in the price of bread.
4. New technology was just invented that decreases the cost of planting and harvesting soybeans: show the effect of this on the soybean market.
5. The price of gasoline has recently come down as has the quantity. Show graphically and explain what might have caused this.
6. The price and quantity of lumber and other building materials has gone up recently. Show graphically and explain what might have caused this.
7. The price of smart phones have come down significantly over the past 2 years. Show graphically and explain what might have caused this.
8. Explain the adjustment to the new equilibrium price from an increase in demand.
9. Explain the adjustment to the new equilibrium price from an increase in supply.
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