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1. Consider the demand curve for Sedans in the United States. For simplicity, assume that all sedans are identical and sell for the same price. Also, assume that:
The current market price of Sedans is $30,000
Average Household income is $60,000 per year
Price of a gallon of gas is $5 per gallon
Price of a subway ride is $2.50
Suppose the price of a sedan decreased from $30,000 to $25,000. This would cause a ________________ the demand curve.
If an increase in average income causes a rightward shift of the demand curve, then you may conclude that sedans are a _____________ good.
Suppose that the price of a gallon of gas rises from $5 to $6. Because sedans and gasoline are _____________, an increase in the price of a gallon of gas shifts the demand curve for sedans to the ____________.
2. With respect to each of the following changes, identify whether the demand curve will shift leftward or rightward.
a) An increase in income (the good under consideration is an inferior good)
b) A rise in the price of a complementary good
c) A fall in the price of a substitute good
d) A rise in the number of buyers
3.
Indicate how each of the following will affect the current supply (Increase supply or Decrease Supply) for personal computers.
a) A rise in wage rates
b) An increase in the number of sellers of computers
c) A tax placed on the production of computers
d) A subsidy placed on the production of computers

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