ECON 356

In Class Exercise One

1.  Using the standard model of supply and demand:

a.  list three factors that would shift the demand curve to the right

b.  list three factors that would shift the supply curve to the left

c.  ceteris paribus, for "a" above, would the market price decrease or increase? Graph this.

d.  ceteris paribus, for "b" above, would the market price decrease or increase? Graph this.

e.  explain in words why a price floor above the market clearing price would cause a surplus.  Graph this.

f.  where do consumer and producer surplus come from?

g.  assume that the market for strawberries has a market clearing price of $2.00 per basket.  Then there is a freeze of strawberry crops.  What would happen to the market clearing price (ceteris paribus) and what would happen to both consumer and producer surplus - explain your answers -- show all on a graph?

h.  assume that tea and lemons are complements and that coffee and tea are substitutes.

    - how, if at all, will the imposition of an effective price ceiling on tea affect the price of lemons?  Explain.

    - how, if at all, will the imposition of an effective price ceiling on tea affect the price of coffee?  Explain.