Answer ☐ U.S. Gas Prices in 2015 Month Price ($) March 2.556 April 2.499 May 2.749 June 2.863 July 2.877 August 2.779 Source: U.S. Energy Information Administration (Oct 2015) Sales in 2015: Grocery Stores Month Sales (Millions of Dollars) January 50,652 February 46,192 March 50,329 April 49,257 May 52,290 June 50,073 ☐ U.S. Median Household Income Year Income ($) 2009 55,415 2010 54,343 2011 53,162 2012 52,970 2013 53,105 2014 53,657 Source: U.S. Census Bureau Merchandise Exports Worldwide in 2014 Commodity Exports (Millions of Dollars) Food 1,486,281 Fuels 3,068,467 Iron and Steel 471,650 Chemicals 2,053,848 Textiles 314,075 Clothing 483,280 Source: World Trade Organization

How does one analyze a market where both demand and supply shift?

Income Effects depend on the income elasticity of demand for each good limit you buy. If one of the goods you buy has a negative income elasticity, that is, it is an inferior good, what must be true of the income elasticity of the other good you buy?

What is the formula for calculating elasticity?

The rules of politics are not always the same as the rules of economics. In discussions of setting budgets for government agencies, there is a strategy called closing the Washington Monument. When an agency faces the unwelcome prospect of a budget cut, it may decide to close a high-visibility attraction enjoyed by many people (like the Washington Monument). Explain in terms of diminishing marginal utility why the Washington Monument strategy is So misleading. Hint: If you are really trying to make the best of a budget cut, should you cut the items in your budget with tile highest marginal utility or line lowest marginal utility? Does the Washington Monument strategy cut the items with the highest marginal utility or line lowest marginal utility?

Suppose both of these events took place at the same time. Combine your analyses of the impacts of the iPod and the tariff Induction to determine the likely impact on the equilibrium price and quantity of Sony Walkman-type products. Shaw your answer graphically.

Review Figure 3.4 again. Suppose the price of gasoline is 1.00. Will the quantity demanded he lower or higher than at the equilibrium price of 1.40 per gallon? Will the quantity supplied be lower or higher? Is them a shortage or a surplus in the market? If so, of how much? Figure 3.4 Demand and Supply of Gasoline

Suppose the cross-price elasticity of apples with respect to the price of oranges is 0.4, and the price of oranges falls by 3. What will happen to the demand for apples?

Use the four-step process to analyze the impact of the advent of the iPod (or other portable digital music players) on the equilibrium price and quantity of the Sony Wellman (or other portable audio cassette player).

What does a downward-sloping demand curve mean about how buyers in a market will react to a higher price?