Economic homework assignment

Note about how to answer the questions:

The first part of the answer is only one of these options:

•    decrease in supply

•    increase in supply

•    decrease in demand

•    increase in demand

The second part is one of the options below (if you choose change in demand, then the 2nd part must be a demand determinant and the same for supply):

Demand Determinants

•    Consumer tastes & preferences

•    Number of buyers in the market

•    Change in consumer income

•    Change in price of a related good (specify substitute or complementary good)

•    Consumer expectations

Supply Determinants

•    Resource prices

•    Improvements in technology

•    Taxes & Subsidies

•    Prices of other goods

•    Producer expectations

Number of sellers in the market

For each scenario below, identify whether there has been an increase in demand, a decrease in demand, an increase in supply or a decrease in supply and state which determinant accounts for the shift. An example is below.

Example: Corporate income tax rates for businesses increase. How will this affect the market for

most goods and services?

Decrease in supply                           Change in taxes or subsidies

1. A popular late-night talk show host discusses the health benefits of not smoking and has several celebrity guests promote this idea with entertaining anti-smoking skits. This has convinced a significant number of people to quit smoking. How will this affect the market for cigarettes?

2. The price of computer chips decreases significantly, enabling manufacturers of hard drives to produce more hard drives. How will this affect the market for hard drives?

3. A national prescription lens association engages in a major ad campaign to convince people that glasses that automatically darken with exposure to sunlight are much healthier for your eyes than glasses that do not. The campaign has been very effective. How will this affect the market for prescription lens that automatically darken?

4. The price of fertilizer has increased. How will this affect soybean production?

5. Swimming pool service providers can service more pools this year than last year due to an advanced

sweeper that automatically adjusts chemicals in the water while sweeping the pool. How will this affect the market for pool-cleaning services?

6. A news report recently announced that baby boomers planned to sell their homes in the suburbs and buy condos in the city sometime in the next three years. How will this affect the demand for condos in the city?

7. To encourage energy conservation, the government will give companies a $10 credit on each residential solar panel that they produce. Companies can deduct the credit from their taxes. How will this affect the market for solar panels?

8. Consumers learn that tap water is healthier than bottled water. How will this affect the bottled-water market?

9. The price of movie tickets has increased significantly. How will this affect the market for DVD rentals?

10. Laptop computer sales have doubled over the past ten months. How will this affect the market for wireless Internet service?