MACROPLEASE REWORD THIS DOCUMENT ATTACHED!!! IN YOUR OWN WORDS PLEASE

3.

a. Small automobiles become more fashionable.

b. The price of large automobiles rises (with the price of small autos remaining the same).

c. Income declines and small autos are an inferior good.

d. Consumers anticipate the price of small autos will greatly come down in the near future.

e. The price of gasoline substantially drops.

Demand increases in (a), (b), and (c); decreases in (d). The last one (e) is ambiguous. As autos and gas are complements, one could argue that the decrease in gas prices would stimulate demand for all cars, including small ones. However, one could also argue that small cars are attractive to consumers because of fuel efficiency, and that a decrease in gas prices effectively reduces the price of the “gas guzzling” substitutes. That would encourage consumers to switch from smaller to larger cars (SUVs), and demand for small automobiles would fall. [This presents a good illustration of the complexity of many of these changes.]

7. In the first statement “supply” and “demand” are used incorrectly. Supply and demand are both schedules or curves that intersect where quantity supplied and quantity demanded are equal. One cannot talk of curves that intersect as exceeding or not exceeding each other. Supply and/or demand can change (the entire curves can shift). Each time this happens, it will create a new intersection of the two curves that will lead to changes in the equilibrium quantity and price of corn. Thus, the terms “supply” and “demand” are used correctly in the second statement.

8.

(a) Pe = $4.00; Qe = 75,000. Equilibrium occurs where there is neither a shortage nor surplus of wheat. At the immediately lower price of $3.70, there is a shortage of 7,000 bushels. At the immediately higher price of $4.30, there is a surplus of 7,000 bushels. (See graph above).

(b) See graph above.

(c) Because at $3.40 there will be a 13,000-bushel shortage which will drive price up. Because at $4.90 there will be a 21,000-bushel surplus which will drive the price down. Quotation is incorrect; just the opposite is true.

11. At P = $3.70. A shortage of 7 units will result. Lines form, orders are placed, and under-the counting tipping may occur. What prompts government to establish price ceilings is simply to make products more affordable for the general public.

Next, suppose that the government establishes a price floor of $4.60 for wheat. What will

be the main effects of this price floor? Demonstrate your answer graphically.

There will be a surplus of bushels of corn, and suppliers will begin to lose money.