Answers to Review Questions 1. The equilibrium price of a good is determined by the intersection of its supply and demand curves. We can know everything about a goods cost of production( that, is we can know its supply exactly) yet still not know where the demand curve will intersect the supply curve 2. A change in demand means a shift of the entire demand curve, whereas a change in the quantity demanded means a movement along the demand curve in response to a change in price 3. If the price of gasol ine were prevented by regulations from rising to its equilibrium level, we would expect to see symptoms of excess demand for gasoline, such as lines of cars waiting at the pumps to buy gas 4. Under the horizontal interpretation, we begin with a price for the good and then go over to the demand curve to read the quantity demanded at that price on the horizontal axis. Under the vertical interpretation, we start with a quantity produced and then go up to the demand curve to read the marginal buyers reservation price for the product on the vertical axis 5. It is smart for each ind ividual in a crowded theater to stand to get a better view of the stage, yet it is dumb for all to stand since no one sees any better than if all had remained seated Answers to problems la Substitutes b Complements c. Probably substitutes for most people, but complements for some others who like o eat ice cream and chocolate togethe d Substitutes 2. The supply curve would shift a. Right. The discovery is a technological improvement. The improved technique would enable more crops to be produced with the same inputs b Right. Fertilizer is an input. Lower input prices shift the supply curve to the c. Right. The new tax breaks make farming relatively more profitable than before Thus those who were employed in a job that was just a little better than being a farmer would switch to farming d Left. Tornadoes destroy corn 3a. Demand shifts right: income has risen and vacations are a normal goodAnswers to Review Questions 1. The equilibrium price of a good is determined by the intersection of its supply and demand curves. We can know everything about a good’s cost of production (that, is we can know its supply exactly) yet still not know where the demand curve will intersect the supply curve. 2. A change in demand means a shift of the entire demand curve, whereas a change in the quantity demanded means a movement along the demand curve in response to a change in price. 3. If the price of gasoline were prevented by regulations from rising to its equilibrium level, we would expect to see symptoms of excess demand for gasoline, such as lines of cars waiting at the pumps to buy gas. 4. Under the horizontal interpretation, we begin with a price for the good and then go over to the demand curve to read the quantity demanded at that price on the horizontal axis. Under the vertical interpretation, we start with a quantity produced and then go up to the demand curve to read the marginal buyer’s reservation price for the product on the vertical axis. 5. It is smart for each individual in a crowded theater to stand to get a better view of the stage, yet it is dumb for all to stand since no one sees any better than if all had remained seated. Answers to Problems 1a. Substitutes b. Complements c. Probably substitutes for most people, but complements for some others who like to eat ice cream and chocolate together. d. Substitutes. 2. The supply curve would shift: a. Right. The discovery is a technological improvement. The improved technique would enable more crops to be produced with the same inputs. b. Right. Fertilizer is an input. Lower input prices shift the supply curve to the right. c. Right. The new tax breaks make farming relatively more profitable than before. Thus those who were employed in a job that was just a little better than being a farmer would switch to farming. d. Left. Tornadoes destroy corn. 3a. Demand shifts right: income has risen and vacations are a normal good