1. Briefly point out the faulty reasoning in each of the following situations:
a. You win a free, nontransferable ticket to a Sheryl Crow concert. Since the ticket is free and it will therefore cost you nothing to go, you decide to go to the concert.
b. You paid nonrefundable tuition of $3,000 to take a 15-week course. Therefore, the opportunity cost of attending class each week is $3,000 divided by 15, or $200.
c. You have purchased 5 premium apples for $1.99 a pound, but when you get home, you discover they are mushy. Since you paid top dollar for these apples, you decide you have to eat them.
2. Briefly explain why the following statements are either TRUE or FALSE:
a. Even though school dormitory rooms are rationed by lottery, these rooms are still affected by economic forces.
b. Because the U.S. postal service is a monopoly and Congress sets postal prices through legislation, market forces do not determine stamp prices.
c. New York City government auctions taxi medallions that give the right to transport passengers by taxi. Because the government controls the number of medallions, market forces do not determine their price.
3. Indicate whether each of the following statements describes an increase in demand, decrease in demand, change in quantity demanded, increase in supply, decrease in supply, or change in quantity supplied in the given market.
a. Store-brand soup prices are cut, reducing sales of Campbell’s soup. Market: Campbell’s soup.
b. Coffee bean prices hit an 18-month low following a bountiful harvest. Market: coffee beans.
c. A summer heat wave leads to higher prices for bottled water. Market: bottled water.
d. Holiday clothing discounts boost clothing sales. Market: clothing.
e. Apple introduces a tinier and more powerful iPod model. Market: older