1. Tennis courts and squash courts are substitutes. Most people play one or the other. However, one could argue that in a climate like New England, some people choose to play tennis in the summer and squash in the winter, and that both sports are pursued in order to stay in shape. In this sense, they are complements.

Squash racquets and squash balls are definitely complements. You need one to use the other

Ice cream and chocolate are ambiguous. Sometimes they are substitutes (do you want an ice cream cone or a brownie). But often they are complements (ice cream is yummy WITH a brownie).

Cloth diapers and paper diapers are substitutes. A baby can only wear one kind at a time. Most parents choose one or the other. If you buy more of one you would normally buy less of the other.

2. A new and improved crop rotation would increase the supply of corn, shifting the supply curve right.

A decline in the price of fertilizer would also increase the supply of corn, shifting the supply curve right.

The government offering new tax breaks to farmers--this would likely shift the supply curve to the right also, although much would depend on the form that the tax breaks take.

A tornado sweeping through Iowa, where a great deal of corn is grown, would likely reduce the supply of corn, shifting it to the left.

3. An increase in family income would probably increase the demand for Adirondack vacations among those like rugged outdoor experiences. But for those families who would prefer a Caribbean vacation, Adirondack vacations might be an inferior good.

A study linking beef consumption to heart disease should reduce the demand for burgers (that is, if people believe it is true).

A relaxation of immigration laws would probably result in an inflow of immigrants with young children, increasing the demand for elementary school places.

An increase in the price of audiocassettes would likely increase the demand for CDs, though audio-cassettes are already kind of a dead technology. Any effect would likely be very small.

An increase in the price of CDs that involved a shift leftward of the supply curve would increase the equilibrium price. Remember, though, that an increase in the price of CDs can take place ALONG a single demand curve, and doesn't necessarily require a shift.

4. The sighting of a UFO might well increase the demand for binoculars in Tucson stores. Why would it affect the supply? Under perfect competition, it would not. In the real world, however, store owners might hoard their binoculars, limiting their supply in order to drive the price up higher.

9. During parents' weekend and graduation weekend, the demand for hotel rooms shifts to the right. But the supply does not shift. The result is often higher rental rates.

Chapter 5

3. Martha compares the ratio of marginal utility to price for both goods.

In the case of orange juice, she gets 75 "utils" per ounce costing 25 cents.

75/25 = 3

In the case of coffee, she gets 50 "utils" per ounce costing 20 cents.

50/20=2.5

She's getting more utils for the money with orange juice. So she should drink more orange juice. As she does the ratio of utils per ounce of orange juice will probably go down.

6. The demand for a particular brand of car, like a Chevy, is likely to be more elastic than the demand for all cars because there are many substitutes for Chevys. But not so many substitutes for cars in general.

9. There is not enough information here to answer this question. This is why it was suggested that you substitute question 8.

8. At point A the slope of the line is -2/6 or -1/3. So the inverse of the slope is -3. You can ignore the minus sign. Applying the formula for elasticity, P/Q(1/slope) you get 4/6 (3)= 2.