Part A

1. Wheat and oats are used to make different types of breakfast cereal and both are grown on the prairies. Using appropriate diagrams, what would happen to the supply and demand of oats if the price of wheat were to rise? What happens to the equilibrium price and quantity?

  • Consider the market for ice cream in Paris. Using appropriate diagrams, explain how each of the following events will impact the equilibrium price and quantity of ice cream. a. The population of Paris increases.
  • For lunch, Wendy eats only salads or fruit & yogurt smoothies. Her weekly food budget is $48. Each salad costs $6 and each smoothie costs $3. a. Draw Wendy’s budget constraint.

4. Kate’s 24-Hour Breakfast Diner menu offers one item, a $5.00 breakfast special. Kate’s costs for servers, cooks, electricity, food, etc. average out to $3.95 per meal. Her costs for rent, insurance and business license average out to $1.25 per meal. This is a highly competitive market. Should Kate stay in business in the short run? In the long run? Explain.

5. The table below sets out cost information for the production of volleyballs. Some values are missing. Fill in these missing values.

6. The following figure shows the average cost curve, demand curve, and marginal revenue curve for a monopolist. After maximizing profits, what does the firm’s revenue equal? Indicate the area of the rectangle (e.g., ABGH, BDEG, etc.…)

7. Explain intuitively why the demand curve facing a perfectly competitive firm is horizontal whereas the demand curve facing a monopolist or a monopolistically competitive firm is downward sloping.

8. Briefly state the basic characteristics of perfect competition, monopoly, monopolistic competition, and oligopoly. Into which of these market classifications does each of the following most accurately fit? (a) a supermarket in your hometown; (b) the steel industry; (c) a Kansas wheat farm; (d) the commercial bank in which you have an account; (e) the automobile industry. In each case, justify your classification.

Part B

These following questions are fairly open-ended. We have discussed various market structures in this module, and we are looking for you to apply what you have learned to real-world data.

9. Select one market to focus on. Clearly indicate the market and describe the market structure. For example, is it perfectly competitive? Is an oligopoly market? And so on.

  • You are free to select any market of your choosing. For example, the global market for copper, the market for housing in London, the market for cheese in the United States, etc… You will have more to talk about for some markets than for others, and you must ensure you can find the appropriate price data.

10. Present data which shows the evolution of prices in that market over time. Try to describe any interesting movements or trends using the concepts covered in the course.

  • For example, can you describe a sudden price jump by a cartel breaking apart, or by a demand shock? Or can you describe a gradual decline in prices by a gradual change in consumer tastes?
  • • A good source of price data is the St Louis Fed: Link. There are many other sources online.

11. Describe how much government regulation is present in the market. What are these regulations in place? If there are not many regulations, should there be?

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