. For each event, illustrate the impact on the relevant market and determine what will happen to the equilibrium price and quantity in that market. (40 points – 10 points per line item)

Question

Event
Market for:
Show which curve shifts
Equilibrium price rise or fall?
Equilibrium quantity increase or decrease?

Economic growth is expected to improve in the next two quarters.
Aluminum




Plastics production capacity has increased.
Plastics




The Japanese government has decided to subsidize its domestic automobile producers with stimulus money.
Automobiles




Manufacturers who use plastic as an input have access to cheaper plastic.
Manufactured goods that use plastic as an input







2. Use the information below of Labor to Total Product (TP) to answer questions A, B, and C. (60 points)



Labor
Total product

(pairs of shoes)

0
0

1
20

2
50

3
75

4
80

5
75




A. Given the information above, what is the marginal product of the third unit of labor?





B. Given the information above, at what point do diminishing marginal returns set in?





C. Given the information above, at what point do negative marginal returns set in?