1. Use a competitive supply/demand diagrams and brief verbal explanations
to analyze the effects on prices and quantities when:
a) stock speculators (buyers and sellers) expect higher future stock
prices.
b) population and income grow while technology advances over time.
2. Stocks and bonds are substitute goods. Using separate competitive market supply/demand diagrams of the bond and stock markets and brief verbal descriptions, explain how stock seller’s expectations of lower future stock prices can lead indirectly to lower bond prices.
3. Use a competitive supply/demand diagram and brief verbal descriptions to explain: “Ironically, Hurricane Dakshina’s destruction of the Caribbean Islands’ tropical fruit supplies may actually increase the total revenues flowing to tropical produces considered as a group. But for some farmers total revenue was zero.”
4. “E the economist” and “F the failure” disagree about the effects of proposed price controls. F believes that all price controls result in either shortages or surpluses. E, however, believes that even with a price control, under certain conditions, that the market equilibrium outcome can occur. Use separate supply/demand diagrams showing both F’s and E’s views to illustrate this point.
5. Consider an economy that produces consumer goods and capital goods. Suppose the economy is operating at full-employment and all consumer goods are subject to legal price ceilings set below the equilibrium price.
a) Use a PPC diagram and brief verbal description to compare the economy’s
production choice under price controls, with the production choice in the
absence of price controls. (Hint: first draw a supply/demand diagram with
a price ceiling in a consumer goods market. Then determine what happens
to the quantity of consumer goods produced.)
b) Would the price controls affect this economy’s future rate of economic
growth?
6. Give a detailed description of the supply/demand equilibrium price result?