Question

What effect will each of the followings have on its equilibrium price and quantity?

Briefly analyze the following questions using demand and supply curves.

a. Suppose the price of

Coke

decreases. How does it affect the market for

Pepsi

?

b. A decline in the price of product A, a good whose production requires substantially the

same technique and resources as does the production of B. How does it affect the market

for

B

?

c. Suppose that the price of gasoline has rapidly risen this year. How does it affect the

market for big

SUV

s (Sport Utility Vehicles)? What about hybrid cars that need less

gasoline than big SUVs?

d. Recently California State government cut state subsidies to public colleges because of the

state budget crisis. Use two market diagrams to explain how a decrease in state subsidies

to public colleges might affect tuition and enrollments in both public and private colleges.

Assume that private colleges do not receive any subsidies from the state government.

Answer 1