On sunday, august 19, the detroit tigers and the new york yankees

1. On Sunday, August 19, the Detroit Tigers and the New York Yankees played baseball at Yankee

Stadium. Both teams were in pursuit of league championships. Tickets to the game were sold out, and

many more fans would have attended if additional tickets had been available. On that same day, the

Cleveland Indians and the Tampa Bay Rays played leach other and sold tickets to only 22,500 people

in Tampa. The Rays stadium, Tropicana Field, holds 43,772. Yankee Stadium holds 57,478. Assume

for simplicity that tickets to all regular-season games are priced at $40.

(a) Draw supply and demand curves for the tickets to each of the two games. (Hint: Supply is fixed.

It does not change with price.) Draw one graph for each game.

(b) Is there a pricing policy that would have filled the ballpark for the Tampa game? If the Rays

adopted such a strategy, would it bring in more or less revenue? Explain.

(c) The price system was not allowed to work to ration the New York tickets when they were initially

sold to public. How do you know? How do you suppose the tickets were rationed?

2. True/False: State whether you think the following statements are True or False, and explain why the

statements are True or False.

(a) the price of a good rises, causing the demand for another good to fall. Therefore, the two goods

are substitutes.

(b) During 2009, incomes fell sharply for many Americans. This change would likely lead to a decrease

in the prices of both normal and inferior goods.

(c) Two normal goods can not be substitutes for each other.

(d) If demand increases and supply increases at the same time, price will clearly rise.

3. The City of Oklahoma City is debating implementing one of two possible solutions for the rising illegal

drug problem. The stated objective the optimal policy is to decrease the amount of money that buyers

spend on the drugs (i.e. to decrease the Total Expenditures on illegal drugs)1. Evaluate the two

proposed policies:

(a) War on Drugs: The War on Drugs campaign attacks the market by reducing the supply of drugs

on the streets. Using a supply/demand diagram, illustrate and explain the impact that this policy

would have on equilibrium price and quantity.

(b) Just Say No: The Just Say No campaign educates people on the effects of drugs. Using a sup-

ply/demand diagram, illustrate and explain the impact that this policy would have on equilibrium

price and quantity.

(c) Which campaign achieves the goal of reducing the amount that buyer spend on illegal drugs.

Support your answer with evidence from parts (a) and (b).

1Recall that Total Expenditure = Total Revenue = P _ Q

4. Suppose the demand curve for eggs in the United States are given by the following equations:

Qd = 100 – 20P

Qs = 10 + 40P.

where Qd = millions of dozens of eggs Americans would like to buy each year; Qs = millions of dozens

of eggs U.S. farms would like to sell each year; and P = price per dozen eggs.

(a) Find the equilibrium price and quantity in the market for eggs. You must show your work to

receive credit.

(b) What is happening in the market for eggs if P = $2? Is there a surplus or shortage? If so, how

large, and what will happen to price? Show your work.

(c) Suppose that researchers determine that consuming three eggs a day reduces the risk of cancer,

and as a result the demand for eggs increases to Q2d = 130 – 20P. What happens to equilibrium

price and quantity in the egg market? Show your work.

(d) Starting from initially equilibrium. Suppose that the price of chicken feed increases reducing the

supply of eggs to Q2s

= –10 + 40P, and at the same time the demand for eggs decreases to

Qd = 50 –20P. What happens to equilibrium price and quantity in the egg market? Show your

work.

(e) Starting from initial equilibrium, what happens in the market for eggs if the government levies

an excise tax of $0.25 on each dozen eggs. Show your work.