Fifth Homework Assignment

ECON 262-3 (TR)

Due at the beginning of class on Thursday, Oct. 20

 27 pts.

Directions:  Copy and paste this into a word document and then type your answers (all word and number answers must be typed or no credit will be given).  Leave spaces between questions (and questions/answer too).  Graphs do not have to be typed. Use at least 10 pt. font.

1.  What does economic calculation mean and what information or knowledge does it tell producers?  (5 pts.)

Graphically show what will happen in each case (to supply or quantity supplied - no demand curves please!).  Remember to always assume ceteris paribus unless otherwise noted. Make sure you label your axes correctly !!

2.  Assume hot dogs and hamburgers are substitutes in production.  What will happen to the supply or quantity supplied of hamburgers if the price of hot dogs increases and at the same time the price of beef increases? (4 pts.)

Leave space here for graph.

3.  Assume a law is passed that will not allow a company to continue using a technology that enables them to extract gold from the earth. What will happen to the supply or quantity supplied of gold? (3 pts.)

Leave space here for graph.

4.  Assume flowers and bees are complements in production.  What will happen to the supply or quantity supplied of bees if the price of flowers decreases? (3 pts.)

Leave space here for graph.

5.  The price of coffee increases.  What will happen to the supply or quantity supplied of coffee? (3 pts.)

Leave space here for graph.

6.    Assume that the government puts a tax on the production of chocolate cake and at the same time the price of sugar (a resource) decreases.  What will happen to the supply or quantity supplied of chocolate cake? (4 pts.)

 Leave space here for graph.

On the next problem - use both supply and demand curves.

7.    Demonstrate where a market clearing price is in the market for cars using the supply and demand model.  Label the market clearing price as P*. (3 pts.) 

Leave space here for graph.

8.    What is happening at the market clearing price according to the model?  (2 pts.)