Problem 3
How is the demand curve for toasters affected by the invention of the toaster oven if people prefer this new way of toasting? What happens to the equilibrium quantity and price of toasters?
Problem 4
You are a sheep farmer. Give three examples of a change that would reduce your supply of wool. Did you use a fall in the price of wool as one of your examples? Is it a valid example?
Problem 5
Goods with snob value are demanded because they are expensive. Does the demand curve for such goods slope upwards?
Problem 9
Given the following market demand, \(Q^{D}=120-2 P\), find the consumers' surplus when \(P=£ 20\) and \(P=£ 15\). Calculate a demand schedule and then draw a graph showing consumer surplus.
Problem 10
Given the following market supply, \(Q^{S}=210-5 P\), find the producers' surplus when \(P=6\) and \(P=8\). Calculate a supply schedule and then draw a graph showing producer surplus.
Problem 11
Consider the market for safe cities. Someone knocks on your door and asks if you wish to purchase a reduction in crime by subscribing to an enhanced citywide police force. Your city has 1 million residents. (a) What happens if you do not subscribe but all your fellow city dwellers do? (b) What happens if you subscribe but nobody else subscribes? (c) What does this tell you about the possibility of a market for public goods such as safe cities? (d) How might society ensure that desirably safe cities are provided?
Problem 12
Profitable speculation should stabilize financial markets - successful speculators are those who buy when the price is below the equilibrium price and sell when it has risen, or sell when the price is above the equilibrium price and buy when it has fallen. Why, then, are financial market prices so volatile?
Problem 13
Essay question The UK government is discussing a change in the planning laws to allow the building of 3 million new homes by 2020 . Discuss what this is likely to mean for (a) the price of houses for first-time buyers and (b) the demand for country houses in areas adjacent to new housing developments. (c) Does your answer to (b) depend upon whether new houses are accompanied by new infrastructure (better roads, shops, train services, flood protection)?
Problem 15
Common fallacies Why are these statements wrong? (a) Manchester United is a more famous football club than Wrexham. Manchester United will always find it easier to fill its stadium. (b) Holding down rents ensures plenty of cheap housing for the poor. (c) Stringent government regulations on safe production methods benefit the consumers. (d) A legal minimum wage above the market equilibrium makes all workers better off.
