1. Suppose the market for home computers is initially in equilibrium.

a. Explain what happens to Supply or Demand for each of the changes below (Hint: Do either increase or decrease? Why?)

b. Illustrate each of these changes on a supply and demand graph. (Draw a entirely new graph to illustrate each situation.)

c. How do these changes affect the equilibrium price and equilibrium quantity. Be sure to identify the initial equilibrium price and quantity and the resulting equilibrium price and quantity.

i. Computers become easier to use and become able to provide all forms of electronic entertainment.

ii. The price of DRAM memory chips (a necessary component) falls.

iii. As the industry becomes more monopolized,prices rise for Operating System Software and for all applications software programs.

iv. All college students are required to own personal computers.

v. Doctors warn of health risks, including increased rates of blindness and of ovarian and testicular cancer from electro-magnetic radiation associated with computer screens and laptop computers .

Multipe Choice: identify the correct answer.

1. Which of the following will cause a decrease in the supply of chicken?

a. The price of chicken falls.

b. Health conscious consumers substitue tofu for chicken in their diets.

c. The nesting costs of chicken farmers increase.

d. New breeding technologies lowers the costs of production of chicken farmers.

e. Newspaper warnings of salmonella bacteria frighten consumers.

2. At prices above the equilibrium price, quantity demanded is:

a. less than quantity supplied, forcing prices down.

b. less than quantity supplied, forcing prices up.

c. greater than quantity supplied, forcing prices down.

d. greater than quantity supplied, forcing prices up.

3. On a graph, a demand line with a slope equal to zero is

a. upward sloping.

b. downward sloping, but very steep.

c. verical.

d. horizontal.

4. The recycling station says it will buy all our scrap aluminum for 19 cents per pound. Its demand curve for aluminum is

a. upward sloping.

b. downward sloping, but very steep.

c. verical.

d. horizontal.

5. With a nearly flat (or horizontal) demand curve, a shift of the supply curve will generate

a. a very small change in output

b. a very large change in output

c. a very large change in price

d. a and c

e. none of the above

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Do you have questions? Phil's e-mail: martinezp@lcc.edu