Question

EC101 Chapter 3 Review Questions 40 points 11. Assume the population of Lazyville increased at the same time a new technology is created that improves the productivity of producing sofas. (3 pts.) a. How this affect the supply and demand of sofas? b. Once the market reaches a new equilibrium, is the new equilibrium price for sofas higher, lower, or the same as the equilibrium price prior to the changes? Or is the change in price unknown? c. Once the market reaches a new equilibrium, is the new equilibrium quantity for sofas higher, lower, or the same as the equilibrium quantity prior to the change? Or is the change in quantity unknown? 12. Each year, Steve Holt typically buys four tickets to attend a professional football game. This year, Steve expects to have a pay cut. How will this affect his demand for football games? (1 pt./ State

Answer 1

All cas i - - Teater / u oo, pe Increase in sopulation will shift 1 The demand curve nightwards to old and improvement Price a in productivity shifts the solas supply curve rightwards to be s's and this new equilibrium occurs at point Es in the sela market b) The new equilibrium price of solas is unknown because it depends on the quantum of shift of supply and demand curnes and thus change in price is ambiguous. - As the diagram depicts at the new equilibrium point Ę the equilibrium - Quantity is higher than the equilibrium Quantity prior to the change.