Key Links

EXERCISES

What would the impact be on the market demand curve for new homes if there were an increase in the price of old homes?

Name two factors that cause market demand curves to shift outward.

Fill in the blanks in the following table. What can you say about the missing price in the table?

If the income levels of all households increase, what happens to the individual demand curves? What happens to market demand?

Suppose the price of coffee increases. Household 1 always eats a chocolate bar while drinking coffee. What will happen to Household 1’s demand for chocolate bars when the price of coffee increases? Household 2 has either coffee or a chocolate bar for dessert. What happens to Household 2’s demand for chocolate bars when the price of coffee increases? What happens to the market demand for chocolate bars when the price of coffee increases?

(Advanced) In Figure 4.3 "The Market Supply of Houses" we showed the market supply curve for new houses. Suppose that a change in government regulations makes it easier for people to become qualified electricians. What will happen to the supply curve for houses?

We said that the equilibrium price and quantity in a market is always positive. More precisely, this is true as long as the vertical intercept of the demand curve is bigger than the vertical intercept of the supply curve. If this is not the case, then the most that any buyer is willing to pay is less than the least any seller is willing to accept. Draw a version of Figure 4.5 "Market Equilibrium" to illustrate this possibility. How much trade do you expect in this market?

Suppose that households become worried about losing their jobs and decide to save more. What happens in the credit market? Do you expect interest rates to increase or decrease?

When interest rates decrease, firms find it cheaper to borrow. What do you think happens to the demand for labor? What happens to the real wage?

What happens to the value of the US dollar if 　 a) foreign investors decide they want to buy more US assets. 　 b) there is a recession in other countries that buy goods produced in the United States.

What do you think will be the effect on the markets for used homes and apartments if there is a reduction in expected capital gains from owning a new home? The shift in the supply curve came from an increase in the cost of credit. Where might the increase in the cost of credit come from?

Think about your hometown as an economy. What does it import (i.e., what goods and services does it purchase from outside the town)? What does it export (i.e., what goods and services are produced in the town and sold outside it)? What about the street you live on—what are its imports and exports?

Using supply and demand, explain how an increase in Chinese demand for Australian butter might be one of the factors causing the Australian dollar to appreciate. How might this affect the labor markets in Australia?

If oil prices increase, what will this do to the demand for apartments and houses in warm climates? What will happen to housing prices in cold climates? Use supply and demand to illustrate.