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1. Use the following table to answer the question:Jif Peanut Butter Skippy Peanut Butter Smuckers Grape Jelly

Price Quantity Price Quantity Price Quantity

$1.50 75 $1.75 75 $3.25 75

$1.75 65 $1.75 100 $3.15 65$2.00 50 $1.75 105 $3.10 55

$2.50 20 $1.75 110 $3.07 45

a. Calculate the price elasticity of demand for Jif Peanut Butter: using the firsttwo rows of the table, using the middle two rows of the table, using the lasttwo rows of the table.

b. Calculate the price elasticity of demand for Jif Peanut Butter using the firstand third row of the table. Why is your answer not equal to the average of thefirst two elasticitys from part a?

c. Calculate the price elasticity of demand for Skippy Peanut Butter using thefirst two rows of the table. (Trick question alert!)

d. Calculate the price elasticity of demand for Smuckers Grape Jelly using thefirst and last row of the table.

e. Using the first two rows of the table, calculate the cross-price elasticity ofdemand of Skippy for Jif.

f. Using the middle two rows, calculate the cross-price elasticity of demand ofSkippy for Jif.

g. A cross-price elasticity of demand near zero means that the items are not veryclosely related. A cross-price elasticity that is high in absolute value meansthe goods are closely related. Does the change in cross-price elasticitybetween parts e and f make sense? Why or why not?

h. Calculate the cross-price elasticity of demand of Skippy for Smuckers usingthe first two rows in the table. What does this tell us about the relationshipbetween Skippy and Smuckers?

i. Calculate the cross-price elasticity of demand of Skippy for Smuckers usingthe last two rows in the table. What does this tell us about the relationshipbetween Skippy and Smuckers?

2. In response to higher oil prices, the United States rapidly increased production ofethanol, a fuel made using corn.

a.Using a supply and demand diagram show what would happen to the price ofcorn. Explain why you moved the curves that you did.b. Given what happened in part a, show the effect on the market for corn tortillas.Explain.

c.On February 1, 2007 75,000 Mexicans protested their government to instituteprice controls (fix the price at a certain level) on corn tortillas. If the Mexicangovernment followed the will of this group, what would happen in the corn tortillamarket in Mexico? (Hint: The market should include the shift in your graph frompart b, but keep the original price.)

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d. Not all Mexicans are unhappy about the changes in the corn market. Whichgroups of people benefit from the change? Why?

3. The internet has given college students from all over the world the ability tocommunicate with each other more easily. Among other things this has allowed

students more options for disposing of textbooks they no longer desire and moreoptions for acquiring used textbooks.

a. Using a supply and demand diagram show the effect this would have on themarket for used textbooks. Shift only the Supply curve. Explain the reasonswhy you made any changes.

b. Using a supply and demand diagram show the effect this would have on themarket for used textbooks. Shift only the Demand curve. Explain the reasonswhy you made any changes.

c. Which effect do you think would have more of an impact, the effect in part a, orthe effect in part b? Carefully explain why you gave the answer you did?

d.

Combine your graphs from parts a and b in order to tell a story that is consistentwith the following data: The price ofnew textbooks has been rising. (Hint: newand used textbooks are substitutes.) Your answer to part d should contain graphsof both the new and used textbook markets.

4. A frost in California has resulted in damage to Tropicana orange groves.a. Draw a single supply and demand diagram showing the market for Tropicana

oranges before and after the frost. Underneath your diagram explain why youmade the changes that you did.

b. After the frost, Senator Snort (R- S.C.) notices that the prices of both Sunkist (aFlorida orange grower) and Tropicana oranges have risen. In televised Senatehearings, Snort admonishes tearful witness Anita Bryant (the spokesperson forSunkist): These price increases are direct evidence of corporate piracy on thepart of Sunkist, lining its pockets at the expense of the widows and orphans whodepend upon oranges for their health and well-being. This is immoral and un-American behavior that will not stand Use a diagram for Sunkist oranges alongwith a written explanation to explain why Senator Snort is incorrect.

5. A new technological breakthrough in the manufacturing of fiberglass allows twice asmuch fiberglass to be made in a day than was previously possible.a. Use a supply and demand diagram to show what would happen to the market for

fiberglass.b. Use a supply and demand diagram to show what would happen to the market for

skateboards (fiberglass is an input to skateboard production).c. At the X-games, two different skateboarders fall and paralyze themselves. This

makes people think that skateboarding is much more dangerous. Show the effectthis would have of the market for skateboards.

d. What is the overall effect on the market for skateboards? Draw one graph thatcombines the shifts from parts b and c.