Question

The market for Wolverine Root Beer is shown in the following demand and supply schedules:

Price (6-pack of Wolverine Root Beer) Quantity Demanded Quantity Supplied

5.00    300    300

4.50    400    250

4.00    600 200

3.50    900 150

3.00    1400 100

Draw a graph to illustrate the market demand and supply for Wolverine Root Beer. What is the equilibrium price and quantity? Describe the situation that would result if the price of Wolverine Root Beer was $4.00.

Gertrude loves both Wolverine Root Beer and Spartan Root Beer. What if she goes shopping and finds that Wolverine Root Beer's price has just risen from $3.00 to $4.00 a six-pack. What effect will this have on her demand for Spartan Root Beer? Why? Use words and graphs to show what will happen in both the Wolverine and Spartan root beer markets (use separate graphs for each product).

Gertrude enjoys eating hot dogs with her root beer (all brands of root beer). What effect would rise in the price of hot dogs have on her demand for root beer? Why? Again, use words and a graph for the root beer market to demonstrate your answer.

Wolverine and Spartan root beer are the best root beers according to the Root Beer Review. But to save money Gertrude usually buys the generic store brand root beer – People’s Choice brand- that is also sold where Gertrude shops. Suppose that Gertrude gets a promotion and a big pay raise at work. What will this do to her demand for generic root beer? Draw a graph of the generic root beer market and explain what happened and why.

A manufacturer can produce hot dog buns and hamburger buns using similar production technology. Suppose that, ceteris paribus, the price of hamburgers rises dramatically. How will this affect the production decisions of this manufacturer? Use a graph to show the effect on the hot dog bun market.

In Canada, the city government in Vancouver introduced rent controls in the rental housing market in after the New Democratic Party took over. Explain what kind of price control is rent control (floor or ceiling). Draw a graph and explain what the situation was like before and after the new government took over.

Hip urban coffee shops with wi-fi, comfy couches and spaces to socialize are found to increase productivity and innovation in a wide variety of local industries whether or not their employees actually go to the coffee shops. What type of externality (or spillover) does this create and what policy should be enacted? In words and a graph, explain how resources are misallocated (over- or under-allocated) and the action the government should take.

Answer 1

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