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1. Markets tend toward equilibrium and, as a result, will tend to eliminate shortages and surpluses. Why?
2. Explain the impact of:
a.
A price floor for milk set above the equilibrium price.
b.
A price ceiling for milk set below the equilibrium price.
3. List and explain three non-price determinants of demand. Explain how a change in each of them can affect demand.
4. If nothing else changes, explain what happens to the price and quantity if the demand curve shifts to the right?
5. Suppose a decrease in consumers’ income causes a decrease in the demand for sausage and an increase in the demand for cheese. Which good is an inferior good and which is normal? Explain your answer.
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