1. What is the effect of each of the following events on the equilibrium
price and quantity of personal computers in the US market? 
a) The price of microprocessor chips decreases. 
b) The price of monitors increases. 
c) The government restricts the entry of foreign-made computers into the
U.S. 
d) The government reduces income taxes for all consumers. 
e) The price of printers decreases and plastic becomes less expensive. 
f) The price of software increases and the government imposes a tax on all
computer manufacturers. 

2. Consider the market for gasoline in the US.  Determine what happens to
the equilibrium price and quantity of gasoline under each of the following
situations: 
a) price of oil rises.  
b) automobile prices decrease. 
c) the economy enters a recession; consequently, incomes are dropping. 
d) several new petroleum firms enter the US market. 
e) it's the middle of summer and people are on vacation and a huge oil
field is discovered off the coast of Cleveland. 
f) environmentalists put pressure on oil companies to shut down the
Alaskan pipeline and consumers expect the price of gasoline to fall next
month.

3. The number of compact discs sold in markets has more than quadrupled
over the past three years. The average price of a compact disc, however,
has fallen. Use supply and demand analysis to explain this phenomenon. 

4. The number of doctors in the US has decreased over the last decade. 
The wage rate of doctors has increased over the same time period. Use
supply and demand analysis to explain this phenomenon. 

5. True or false: Some cities raise revenue by levying a tax on employers
equal to a certain number of dollars per employee per year. This is a good
thing for workers, because workers are not taxed. 

6. Far fewer babies are currently offered for adoption in the United
States than couples want to adopt.  Would you call this a shortage?  Why
doesn't the price of an adopted baby rise?  By what criteria are the
scarce babies rationed to demanders? 

7. Which of the following statements uses incorrect terminology? Explain. 
a) "The recent fare war among the major airlines has increased the demand
for air travel." 
b) "The recession of 1990-1992 has caused the demand for air travel to
fall." 

8. Suppose that the market price for personal computers has fallen over
the course of a year from $1500 to $1300. At the same time, the number of
computers bought has risen from 5 million to 6.5 million.  Suggest an
explanation for this data using supply and demand. 

9. Distinguish between a change in demand and a movement along a given
demand curve.  Explain the chief causes of each.  Now distinguish between
a change in supply and a movement along a given supply curve.  Explain the
chief causes of each. 

10. "If the DEA intercepts 100 tons of cocaine, the supply of cocaine will
fall. This will cause the price to rise, which will increase the supply
back to its original position". True, false, or uncertain. Explain. 

11. When the price of water in southern California rose, some analysts
attributed the change to the drought, others attributed it to more people
living in southern California, and those people who live there buying
bigger swimming pools. Since both the drought and the influx of people
who are getting richer occurred simultaneously, how would you determine
which set of analysts had described the dominant cause of the price
increase? 

12. Assume that the demand for heroin is inelastic, and assume further
that users get the funds to pay for heroin by stealing. Suppose the
government increases penalties on heroin suppliers and thereby reduces
supply. What will happen to the price of heroin? What will happen to the
amount of crime committed by heroin users?