- Explain how absolute advantage and comparative advantage differ.
- Give an example in which one person has an absolute advantage in doing something but another person has a comparative advantage.
- What are the demand schedule and the demand curve, and how are they related? Why does the demand curve slope downward?
- Define the equilibrium of a market. Describe the forces that move a market toward its equilibrium.
- Beer and pizza are complements because they are often enjoyed together. When the price of beer rises, what happens to the supply, demand, quantity supplied, quantity demanded, and the price in the market for pizza?
- Market research has revealed the following information about the market for chocolate bars: The demand schedule can be represented by the equation QD = 1,600 – 300P, where QD is the quantity demanded and P is the price. The supply schedule can be represented by the equation QS = 1,400 + 700P, where QS is the quantity supplied. Calculate the equilibrium price and quantity in the market for chocolate bars.
- The market for pizza has the following demand and supply schedules:
Price Quantity Demanded Quantity Supplied
$ 4 135 Pizzas 26 Pizzas
$ 5 104 Pizzas 53 Pizzas
$ 6 81 Pizzas 81 Pizzas
$ 7 68 Pizzas 98 Pizzas
$ 8 53 Pizzas 110 Pizzas
$ 9 39 Pizzas 121 Pizzas
a. Graph the demand and supply curves. What is the equilibrium price and quantity in this market?
b. If the actual price in this market were above the equilibrium price, what would drive the market toward the equilibrium?
c. If the actual price in this market were below the equilibrium price, what would drive the market toward the equilibrium?
- Define the price elasticity of demand and the income elasticity of demand.
- If demand is elastic, how will an increase in price change total revenue? Explain.
- Give an example of a price ceiling and an example of a price floor.
- Which causes a shortage of a good—a price ceiling or a price floor? Justify your answer with a graph.
Sample Solution
