- Use the points on the line in the graph below to answer the questions. For example, if there are more buyers in the market, we could move from point B to point C or point A to point C. (5 points)
Suppose this is the market for cupcakes.
a. Using the points on the figure, explain the change that would happen if there is an increase in income in the economy.
b. Describe the change that would happen if the price of cookies increased.
c. Describe the change that would occur if the price of CUPCAKES decreased.
d. Describe what would happen if the newspapers reported cupcakes will double in price next week.
e. Describe what would happen if frosting drops in price.
- Use the graph below to answer the following questions. (4 points)
a. Using the midpoint method, what is the price elasticity of supply between $15 and $25?
b. What is the price elasticity of supply between $25 and $35?
c. What is the price elasticity of supply between $5 and $15?
d. Which part of the line is most elastic? (a), (b), or (c)?
- Use the graph to answer the questions. For each scenario, list whether there is a shortage or surplus and what the size of the short or surplus is. (4 points)
a. If the government imposes a price ceiling of $40.
b. The government set a price ceiling of $100.
c. The government set a price floor of $80.
d. The government set a price ceiling at $80.
- Using the graph shown, answer the following questions. (7 points)
a. What is the equilibrium price int eh market before the tax?
b. What is the amount of the tax?
c. How much of the tax will the buyers pay?
d. How much of the tax will the sellers pay?
e. How much will buyers pay after the tax is imposed?
f. How much will the sellers receive after the tax is imposed?
g. What happens to market activity after the tax is imposed?
Sample Solution