The Covid-19 pandemic in early March has resulted in shortages of toilet paper, rice,
flour, pasta and many other household items, and it took some time before supermarket shelves
returned to normal. Explain why there were shortages of these products using demand and supply.
You can pick one particular item or more to explain your answer.
Question 2. Suppose you are in charge of sales at a pharmaceutical company, and your firm has a
new drug that causes bald men to grow hair. Assume that the company wants to earn as much
revenue as possible from this drug. If the elasticity of demand for your company’s product at the
current price is 1.4, would you advise the company to raise the price, lower the price, or to keep the
price the same? What if the elasticity were 0.6? What if it were 1? Explain your answer.
Question 3. Automobile manufacturing is an industry subject to significant economies of
scale. Suppose there are four domestic auto manufacturers, but the demand for domestic autos
is no more than 2.5 times the quantity produced at the bottom of the long-run average cost
curve. What do you expect will happen to the domestic auto industry in the long run?
Question 4. For a high-income economy like Australia, what aggregate production function
elements are most important in bringing about growth in GDP per capita? What about a middleincome country such as India? A low-income country such as Afghanistan?
Question 5. Imagine that the government statisticians who calculate the inflation rate have
been updating the basic basket of goods once every 10 years, but now they decide to update it
every five years. How will this change affect the amount of substitution bias and quality/new