NAME: ___________________________________________
____
DATE: ____ / ____ /
CHAPTER FIVE PROBLEM SET
Give the best answer to each of the following questions.
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1. Match the graph that best illustrates the event described.
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a. The price for a gallon of milk is projected to hit $3 in the United States because fewer
dairy cows are available from Canada because of mad cow disease and there is greater
foreign demand for dairy products. Market: milk.
b. Hurricanes and heavy rains lead to a huge increase in tomato prices. Market: tomatoes.
c. Low interest rates and a booming economy lead to a boom in housing construction. As a
result, plywood prices rise 24%. Market: plywood.
2. Explain the supply-and-demand effects of the following events on the market for euros:
a. The popularity of European cars rises dramatically among Americans.
b. U.S. stock market prices are expected to rise much faster than European stock market
prices.
c. The U.S. economy enters a recession.
d. The U.S. government places high tariffs on imported European goods.
3. How are the effects of an effective price floor and a tax similar? How are the effects
dissimilar?
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4. The graph below shows supply and demand curves for annual medical office visits. Using
this graph, answer the questions below.
a. If the market were free from government regulation, what would be the equilibrium price
and quantity?
b. Calculate total expenditures on office visits with this equilibrium price and quantity.
c. If the government subsidized office visits and required that all consumers were to pay
$30 per visit no matter what the actual cost, how many visits would consumers demand?
d. What payment per visit would doctors require in order to supply that quantity of visits?
e. Calculate total expenditures on office visits under the condition of this $30 co-payment.
f.
How do total expenditures with a co-payment of $30 compare to total expenditures
without government involvement? Provide a numerical answer.