Kate Symes
Student No. 569430668

1. The invention of the french fry would result in an increased demand for 
potatoes - that is, the demand curve for potatoes would shift outward. This 
would result in an increase in price, and a corresponding increase in supply. 
As the supply curve comes up to meet the new, higher demand curve, we would 
actually see an increase in overall demand, supply, AND price. The statement 
is wrong in assuming that increased supply equals a lower price.

2. a. The value of one bottle of beer to me between points A and B is 8 
bottles of soda.
b. I am therefore indifferent between bundles A and B, because they both 
allow me the same frequency of use and same level of satisfaction.
c. Bundle E must include about 216 bottles of soda in order to make me 
indifferent between it and bundle D. This follows from the logic that, when I 
have 100 bottles of soda, it would take about 8 more to make me give up one 
bottle of beer in the bundle. Here I have 200 bottles of soda - I would need 
AT LEAST 8 bottles of soda to make me give up one more beer in another bundle 
with the same frequency of use.

3. Firstly, this legislation produces a disincentive for parents to travel 
with children on an airplane because it increases the already high costs 
associated with flying. Add to this the somewhat more relaxed rules of the 
highway, and you might find more families taking road trips on their next 
vacation. This is a potential secondary effect of the legislation which could 
actually increase injuries and fatalities - secondary because it would not be 
directly associated with injuries caused in airplane crashes, but because it 
would incent people to find other, possibly more dangerous, modes of 
transportation.

4. Auto safety legislation puts constraints on auto makers to make cars as 
safe as possible while still maintaining a profit. It also narrows consumers' 
choice sets when buying a new car. A person buying a car in a country with no 
auto safety legislation might make auto safety a priority in their decision. 
In a country indoctrinated by Nader's book, the choice between whether to buy 
a safe or unsafe car is taken away - all cars are made equally safe. Because 
of this, car-buyers have less incentive to drive safely and more leeway to 
choose their car for other reasons. Soon, safety in a car becomes a moot 
point and the car buyer is only concerned with a good price or other 
incentives. Auto accidents increase because there is no longer an incentive 
to drive safely - legislation has made cars, in consumers' minds, 
indestructible. If cars are indestructible, so then are the people in them.

5. a. My demand curve shows that I would purchase 1 gallon of soda at a price 
just under $10. So when I purchase 5 gallons at $5 a gallon, I am better of 
by $12.50.
b. I can purchase 3 more gallons of Diet Coke when it is priced at $3 a 
gallon than when it's priced at $5. Therefore, I'm better off by $2.50 - a 
gain of 3 gallons times a decrease of $2 divided by 2. 
c. If Diet Coke was free, I'd consume up to 10 gallons of it before it 
wouldn't be worth it for me to consume anymore. My consumer surplus is $50.

6. a. A will sell chairs to B. A can make 5 chairs in the time it takes him 
to build 1 table, while B can only build 3 in the time it takes him to build 
a table. (A's chair-to-table time ratio is greater than B's - 1/2 to 1/3.)
b. A will buy tables from C. C can make a table in only twice the amount of 
time it takes him to build a chair, while A takes five times as long to build 
a table than a chair. (A's table-to-chair time ratio is greater than C's - 5 
to 2.)
c. B will do neither. Since B can make chairs faster (rate of 1/3 for B to 
1/2 for C), B won't buy chairs from C. And because C can make tables faster 
(rate of 2 for C to 3 for B), B can't sell tables to C.

7. a. The equilibrium price is $3.96. 
 -10 + 50P = 200 - 3P
 53P = 210
 P = 210/53
 $3.96

The quantity is 188 textbooks.
 -10 + (50)(3.96) = 188
 200 - (3)(3.96) = 188
 188

b. The sticker price becomes $6.79.
 -10 + 50(P-3) = 200 - 3P
 -10 + 50P -150 = 200 - 3P
 360 = 53P
 P = 360/53
 $6.79

The market quantity stays at 188 textbooks.

c. The sticker price becomes $3.79.
 -10 + 50P = 200 - 3(P+3)
 -10 + 50P = 200 - 3P - 9
 201 = 53P
 $3.79

Market quantity decreases marginally to 179 textbooks.
 
d. If the seller pays $3 per book in taxes, the seller charges $6.79 and 
receives $3.79 per book. If the buyer pays $3 per book in sales tax, the 
buyer pays $3.79 per book. The costs are equal despite which party is paying 
the tax.

e. The government collects $564 ($3 tax times 188 books) in tax revenues for 
this set of terms.


8. a. The equilibrium price is $42.
 -10 + 5P = 200
 5P = 210
 P = 42

The market quantity is 200.

b. The sticker price becomes $210 - t.
 -10 + 5(P-t) = 200
 -10 + 5P + 5t = 200
 P = 210 - t

c. The government takes in a tax revenue of 200t. There are deadweight costs 
associated with this tax because the supply is more elastic than the demand 
for insulin. Therefore, consumers will bear more of the burden of the tax.

9. a. Affects supply; supply curve will increase; price and quantity 
exchanged will increase
b. Affects demand; demand curve will decrease; price and quantity exchanged 
will decrease
c. Affects supply: supply curve will decrease: price will and quantity 
exchanged will decrease
d. Affects supply: supply curve will increase; price will decrease, quantity 
exchanged will decrease
e. Affects supply: supply curve will increase; price will decrease, quantity 
exchanged will decrease
f. Affects demand: demand curve will increase; price and quantity exchanged 
will increase
g. Affects demand; demand curve will decrease; price and quantity exchanged 
will increase
h. Affects supply: supply curve will increase; price will decrease, quantity 
exchanged will increase