Chapter 3

In April 2014 , the money price of a carton of milk was $\mathrm{\$}2.01$ and the money price of a gallon of gasoline was $\mathrm{\$}3.63.$ Calculate the relative price of a gallon of gasoline in terms of milk.

The price of food increased during the past year. a. Explain why the law of demand applies to food just as it does to other goods and services. b. Explain how the substitution effect influences food purchases when the price of food rises and other things remain the same. c. Explain how the income effect influences food purchases and provide some examples of the income effect.

Which of the following goods are likely substitutes and which are likely complements? (You may use an item more than once): coal, oil, natural gas, wheat, corn, pasta, pizza, sausage, skateboard, roller blades, video game, laptop, iPad, cellphone, text message, email

As the average income in China continues to increase, explain how the following will change: a. The demand for beef b. The demand for rice

In $2013,$ the price of corn fell and some corn farmers will switch from growing corn in 2014 to growing soybeans. a. Does this fact illustrate the law of demand or the law of supply? Explain your answer. b. Why would a corn farmer grow soybeans?

Dairies make low-fat milk from full-cream milk, and in the process they produce cream, which is made into ice cream. The following events occur one at a time: (i) The wage rate of dairy workers rises. (ii) The price of cream rises. (iii) The price of low-fat milk rises. (iv) With a drought forecasted, dairies raise their expected price of low-fat milk next year. (v) $$ New technology lowers the cost of producing ice cream. Explain the effect of each event on the supply of low-fat milk.

Frigid Florida Winter is Bad News for Tomato Lovers An unusually cold January in Florida destroyed entire fields of tomatoes. Florida's growers are shipping only a quarter of their usual 5 million pounds a week. The price has risen from $\mathrm{\$}6.50$ for a 25 pound box a year ago to $\mathrm{\$}30$ now. Source: $USA$ Today, March 3,2010 a. Make a graph to illustrate the market for tomatoes before the unusually cold January and show how the events in the news clip influence the market for tomatoes. b. Why is the news "bad for tomato lovers"?

The money price of a Persian rug is $\mathrm{\$}100$ and the money price of an Egyptian kaftan is $\mathrm{\$}25$ a. What is the opportunity cost of a Persian rug in terms of an Egyptian kaftan? b. What is the relative price of an Egyptian kaf$\tan$ in terms of Persian rugs?

The price of gasoline has increased during the past year. a. Explain why the law of demand applies to gasoline just as it does to all other goods and services. b. Explain how the substitution effect influences gasoline purchases and provide some examples of substitutions that people might make when the price of gasoline rises and other things remain the same. c. Explain how the income effect influences gasoline purchases and provide some examples of the income effects that might occur when the price of gasoline rises and other things remain the same.

Think about the demand for the three game consoles: Xbox One, PlayStation 4, and Wii U. Explain the effect of each of the following events on the demand for Xbox One games and the quantity of Xbox One games demanded, other things remaining the same. The events are a. The price of an Xbox One falls. b. The prices of a PlayStation 4 and a Wii U fall. c. The number of people writing and producing Xbox One games increases. d. Consumers' incomes increase. e. Programmers who write code for Xbox One games become more costly to hire. f. The expected future price of an Xbox One game falls. g. A new game console that is a close substitute for Xbox One comes onto the market.