Chapter 3 Problems

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

d) The summer is unexpectedly hot! Ceteris paribus, people like to eat more ice creams. However,
producers of ice creams face higher consumption of electricity power (to prevent ice creams from
melting). In equilibrium, the price increases and the quantity remains the same. True, False, It
Depends. [Use a diagram].
Also problems 8 and 9 from your textbook