Module #2 Chapter 5, 6 & 19
Consider the following pairs of goods. For which of the two goods would you expect the demand to
be more price elastic? Why?
a. water or diamonds
b. insulin or nasal decongestant spray
c. food in general or breakfast cereal
d. gasoline over the course of a week or gasoline over the course of a year
e. personal computers or IBM personal computers
e. What is the elasticity of demand between $5 and $2 in the children's market? Is this
elastic or inelastic?
f. Given the graphs and what your friend knows about economics, he recommends you
increase the price of adult tickets to $8 each and lower the price of a child's ticket to $3.
How much could you increase total revenue if you take his advice?
Using the graph shown, analyze the effect a $300 price ceiling would have on the
market for ten-speed bicycles. Would this be a binding price ceiling?
Using the graph shown, analyze the effect a $700 price floor would have on this
market for ten-speed bicycles. Would this be a binding price floor?
Why would policymakers choose to impose a price ceiling or price floor?
Module 3 Chap 0 & 19
What components of GDP (if any) would each of the following transactions affect? Explain.
A family buys a new refrigerator.
Aunt Jane buys a new house.
Ford sells a Mustang from its inventory.
You buy a pizza.
California repaves Highway 101.
Your parents buy a bottle of French wine.
Honda expands its factory in Marysville, Ohio.
In the economy of Wrexington in 2008, consumption was one-half of GDP, government purchases
were $2000 more than investment, investment was one-sixth of GDP, and the value of imports
exceeded the value of exports by $500. What was Wrexington’s GDP in 2008?
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