Chapter 3 Problems
Chapter 3 Problems
Chapter 3 Problems
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a) Suppose that the price of basketball tickets at your college is determined by market forces.<br />
Currently, the demand and supply schedules are as follows:<br />
Price<br />
($)<br />
a.1) Draw the demand and supply curves. What is unusual about the supply curve? Why might this be<br />
true?<br />
a.2) What are the equilibrium price and quantity of tickets?<br />
a.3) Your college plans t o increase total enrollment next year by 5,000 students. The additional<br />
students will have the following demand schedule:<br />
Price<br />
($)<br />
Quantity<br />
Demanded<br />
4 10,000 8,000<br />
8 8,000 8,000<br />
12 6,000 8,000<br />
16 4,000 8,000<br />
20 2,000 8,000<br />
>20 0 8,000<br />
Extra Quantity<br />
Demanded<br />
4 4,000<br />
8 3,000<br />
12 2,000<br />
16 1,000<br />
20 0<br />
>20 0<br />
Quantity<br />
Supplied<br />
What is the new demand for the entire college? What will be the new equilibrium price and quantity?<br />
b) “An increase in the demand for notebooks raises the quantity demanded but not the quantity<br />
supplied of notebooks”. True, False, It Depends. [Use a diagram to justify your answer].<br />
c) An article in the New York Times describes a successful marketing campaign by French champagne<br />
industry, which is traded in a highly competitive market. The article noted that “many executives felt<br />
giddy about the recent stratospheric champagne prices. But they also feared that such sharp price<br />
increases would cause demand to decline, which would then cause prices to plunge”. What mistake<br />
are the executives making in their analysis of the situation? [Illustrate your answer with a graph and<br />
provide a technical answer].
d) The summer is unexpectedly hot! Ceteris paribus, people like to eat more ice creams. However,<br />
producers of ice creams face higher consumption of electricity power (to prevent ice creams from<br />
melting). In equilibrium, the price increases and the quantity remains the same. True, False, It<br />
Depends. [Use a diagram].<br />
Also problems 8 and 9 from your textbook