1.
Use the supply-and-demand model to explain
verbally and illustrate graphically why sales at the restaurant chain Chipotle
have fallen lately. (3)
2.
.0/msohtmlclip1/01/clip_image001.png”>The
graph below depicts the market for an asthma medicine.
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Note: Each vertical square equals $10; each
horizontal square equals 1000 units
a.
Suppose many consumers complain
to the government about the high price of their asthma medication and that the
government responds by putting a price ceiling of $70 on this medication. Will this policy help all the consumers of
this medicine? Explain verbally and
illustrate on the graph. (3)
b.
How much deadweight loss will the price ceiling cause? Show on the graph. (2)
3.
Several states have legalized
pot. The graph below depicts the pot market in one of those states. Note: Each vertical square equals $25; each
horizontal square equals one thousand ounces.
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a.
How would an excise tax of $75
per 1000 ounce impact the equilibrium price and quantity of pot? State below
and show on the graph. (3)
b.
How EXACTLY would the excise tax impact the well-being of pot consumers?
Calculate below and show on the graph.
(3)
4.
Suppose that when the price of
milk rises from $4.20 to $4.60 per gallon, the quantity demanded falls from 760
to 720 gallons.
a.
Compute the elasticity of
demand for milk below. (2)
b.
Based on your calculation, is
the demand for milk sensitive to price or not sensitive to price? Explain. (2)
c.
Interpret the number you
calculated for the elasticity of demand for milk. What does that number mean?
(2)
d.
If the price of milk were to
rise by 5%, how exactly would the quantity demanded change? Compute below. (2)
e.
If the government placed an
excise tax on milk, who would pay the majority of the tax, milk producers or
milk consumers? Explain verbally. (2)
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