Practice Questions Chapter 1 1. People respond to incentives ...

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Chapter 41. Suppose we have the following market supply and demand schedulesfor bicycles:a. Plot the supply curve and the demand curve for bicycles in Exhibit 1.Exhibit 1b. What is the equilibrium price of bicycles?c. What is the equilibrium quantity of bicycles?d. If the price of bicycles were €100, is there a surplus or a shortage?How many units of surplus or shortage are there? Will this cause theprice to rise or fall?e. If the price of bicycles were €400, is there a surplus or a shortage?How many units of surplus or shortage are there? Will this cause theprice to rise or fall?Practice Questions to accompany Mankiw & Taylor: Economics 8
f. Suppose that the bicycle maker's labour union bargains for an increasein its wages. Further, suppose this event raises the cost of production,makes bicycle manufacturing less profitable, and reduces the quantitysupplied of bicycles by 20 units at each price of bicycles. Plot the newsupply curve and the original supply and demand curves in Exhibit 2.What is the new equilibrium price and quantity in the market forbicycles?Exhibit 22. Each of the events listed below has an impact on the market forbicycles. For each event, which curve is affected (supply or demand forbicycles), what direction is it shifted, and what is the resulting impact onequilibrium price and quantity of bicycles?a. The price of cars increases.b. Consumers' incomes decrease, if bicycles are a normal good.c. The price of steel used to make bicycle frames increases.d. An environmental movement shifts tastes toward bicycling.e. Consumers expect the price of bicycles to fall in the future.f. A technological advance in the manufacture of bicycles occurs.g. The price of bicycle helmets and shoes is reduced.h. Consumers' incomes decrease, if bicycles are an inferior goodPractice Questions to accompany Mankiw & Taylor: Economics 9
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Chapter 261. Fly-by-night Corporati
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d. Starting at the original equilib
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. Bruce discovers that he has a liv
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. Does the minimum wage have any im
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d. Was wealth redistributed to the
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e. Suppose prices move as you have
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2. a. Suppose private saving increa
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. What happens to the price level a
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