Case / Fair: Chapter 3: 1-6

CHAPTER 3

1.
	(e)

2.

              

      (b) It depends on whether demand responds to the lower price and by how much. The diagram in (a) suggests that if price was lowered a substantial amount, the stadium would be filled.

      (c)  The price system was not allowed to work to ration the Texas tickets. Some other rationing device must have been used. Perhaps people stood in line or queued. Perhaps there was a lottery. In all likelihood, there would be a secondary market for the tickets (scalpers). You could no doubt find the tickets for sale online at a high price.

3.   If the supply of new homes kept pace with the expanding demand, prices would remain constant. The supply curve shifts to the right at the same rate as the demand curve shifts to the right:

            

4.   (a)  Disagree. They are complements.

            An increase in the price of a complement for product X causes demand for product X to fall.

            

      (b)  Agree

            An increase in supply causes price to fall.

      

      (c)  Disagree. A fall in income will cause the demand for inferior goods to rise, pushing prices up

      

      (d)  Disagree. Sure they can. Both steak and lobster are normal goods.

            An increase in the price of steak (a normal good) increases the demand for lobster (also a normal good).

           

      (e)  Disagree. Price could go down if the shift of supply was larger than the shift of demand.

            An increase in demand and an increase in supply may cause price to decrease.

      

      (f)  Agree.

            A decrease in the price of product A increases the demand for a complement (product B), increasing the price of product B.

                     

5.   Since the jerseys do have slight differences (team name and logo, player name and number, etc.), they would be considered substitutes as opposed to perfect substitutes for each other. For some consumers, other authentic, licensed team merchandise such as t-shirts, or non-licensed team jerseys may be considered substitutes for the authentic jerseys, but other consumers may not consider these as substitutes. This depends on the consumer’s taste and preference.

6.   If the price of tobacco is supported by limiting land used to grow it, then the supply curve for tobacco shifts to the left. The anti-smoking publicity works to shift the demand curve to the left. Both of these policies work together to reduce consumption of tobacco.