Economics assignment

Econ 200 Homework 2: Due Friday, February 20th

Name: _______________________ Row: ________

NOTE: The first 7 questions can be done entirely online, but the last question is a graphical

question so it must either be handed in after class or scanned and placed in the Question 8 dropbox.

Multiple Choice (1 pt each)

Use the graph below to answer question 1 - 3:

1. Soda manufacturers use corn syrup to produce soda. Which graph illustrates the impact of an increase in the price of corn syrup on the market for soda?

a. A b. B c. C d. D

2. Consumers view soda and bottled iced teas as substitute goods. Which of the graphs illustrates the impact of a decrease in the price of bottled iced tea on the market for

soda?

a. A b. B c. C d. D

3. In order to get into law school, students must take the LSAT exam and many companies offer courses meant to prepare students for the LSAT. As a result, LSAT prep courses are a

complementary good to law school. Which of the diagrams above accurately shows the impact

that a decrease in the price of law school (lower law school tuition), ceteris paribus, has on the

market for LSAT prep courses?

a. A b. B c. C d. D

Figure 4-1 shows Kendra's demand for ice-cream cones curve. Use this Figure to answer the following

question.

Figure 4-1

4. Refer to Figure 4-1. Kendra's marginal benefit from consuming the second ice cream cone is

a. $6.50 b. $6.00 c. $3.00 d. $2.25

5. Dmitri and Jennifer both enjoy going to Bo Bo’s drive-in for lunch. After both receive pay raises, Dmitri’s demand for lunch at Bo Bo’s increases and Jennifer’s demand for lunch at Bo Bo’s

decreases. We can assume that

a. Lunch at Bo Bo’s is a normal good for Dmitri and an inferior good for Jennifer. b. Lunch at Bo Bo’s is a normal good for Jennifer and an inferior good for Dmitri. c. Lunch at Bo Bo’s is a normal good for both Jennifer and Dmitri. d. Dmitri is behaving rationally and Jennifer is not.

6. The following two comments come from an article in the Wall Street Journal on coffee crops in South America and a research report from EuroMonitor on tastes of Chinese consumers:

i. "We have been getting more rain than in previous weeks and this is good for this year's crop," said Thiago Cazarini, a coffee broker in top grower Brazil… Output in Colombia, the biggest producer of mild washed Arabica in Latin America,

increased [because of] a nationwide coffee-plant replacement program, in which

farmers planted more disease-resistant varieties.”

ii. “With years of consumer education and effective marketing, Chinese consumers are increasingly accepting of the coffee-drinking culture. The booming chained

specialist coffee shops in major cities also helped cultivate coffee-drinking habits

especially among young consumers and office workers during the review

period.”

Last year, the price of coffee was $1.56 per lb. and global quantity was 144 million bags of

coffee. The two events above are both impacting the current year’s coffee market. What would

you expect to happen to the equilibrium price and quantity of coffee beans this year?

a. The equilibrium price will be higher than $1.56 per lb. and the equilibrium quantity could be higher or lower than 144 million bags.

b. The equilibrium price will be lower than $1.56 per lb. and the equilibrium quantity could be higher or lower than 144 million bags.

c. The equilibrium quantity will be higher than 144 million bags and the equilibrium price could be higher or lower than $1.56 per bag.

d. The equilibrium quantity will be lower than 144 million bags and the equilibrium price could be higher or lower than $1.56 per bag.

7. The following statement came from a January 11th article in the Wall Street Journal:

“Hotel room rates are going to be pricey in the Phoenix area for next month’s Super Bowl, which

officials say will bring 100,000 visitors to the city. Average daily rates for the Super Bowl

weekend have jumped 89%, according to hotel reservation tracker TravelClick, and occupancy

levels are running 68% higher than a year earlier.”

Referring to concepts from the supply and demand model, explain the Super Bowl’s impact on the

Phoenix hotel room market. (i.e.: What, if anything, is happening to supply, demand, equilibrium

price, quantity etc…?)

8. (4 pts) The graph below shows the typical market for flu vaccines. Over the last 5 years two significant events have impacted the market.

i. A significant number of parents, concerned about the safety of vaccines, have opted against having their children vaccinated.

ii. A number of manufacturers of the vaccine, citing a low return on their investment, have exited the market.

a. Model the impact on that the these two events together will have on the market for flu

vaccines

(Be sure to label your graph such that it is clear which change is a result of which event)

b. Based on these two impacts occurring simultaneously what would we expect the impact to be on

Equilibrium price?

(Increase / Decrease / Ambiguous)

Equilibrium quantity?

(Increase / Decrease / Ambiguous)

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