Unit 2

SHORT ANSWER Session 1 1. Key Idea: Markets have two sides. One side of a market is the demand side. Describe why the law of demand holds.

2. Key Idea: Markets have two sides. One side of a market is the supply side. (a) Explain why the supply curve is usually upward-sloping. (b) Explain why the law of supply does not always hold.

Session 2 3. Predict what would happen to the equilibrium price of marijuana if it were legalized. 4. This question deals with demand and supply and refers you to the table below. a. Given the table, graph the demand and supply curves for flashlights. Make certain to label equilibrium price and equilibrium quantity. b. Explain what would happen in the market if suppliers want to sell at $5, c. Explain what would happen in the market if consumers want to buy at $2 Price $5 $4 $3 $2 $1 Quantity Demanded/Month 6,000 8,000 10,000 12,000 14,000 Quantity Supplied/Month 10,000 8,000 6,000 4,000 2,000

5. If demand for show tickets is described by the equation QD = 100 p, and supply

is QS = 20 + p, find the equilibrium price and quantity. How would your answer change if the supply curve shifted to QS = 10 + p due to increases in actor salaries?

Session 3 6. Which good in each of the following pairs of goods has the higher price elasticity of demand: (a) airline travel in the short run or airline travel in the long run; (b) television sets or Sony television sets; (c) cars or Toyotas; (d) telephones or C&W telephones?

7. A university raises its annual tuition from $2,000 to $2,500, and its student enrolment falls from 4,877 to 4,705. Compute the price elasticity of demand. Is demand elastic or inelastic?

8. The equation for the demand for bow ties is Q = 200 10p, what is the elasticity of demand when p = $10? Is demand elastic or inelastic?