Chapter 2 1) Suppose a new discovery in computer manufacturing has just made computer production cheaper. Also, the popularity and usefulness of computers continues to grow. Use Supply and Demand analysis to predict how these shocks will affect equilibrium price and quantity of computers. Is there enough information to determine if market prices will rise or fall? Why? 2) Suppose the cable TV industry is currently unregulated. However, due to complaints from consumers that the price of cable TV is too high, the legislature is considering placing a price ceiling on cable TV below the current equilibrium price. Assuming the government does make this price ceiling law, please construct a diagram that shows the impact of this law on …show more content…
Diagram Bobby's budget constraint. Now, suppose Bobby's parents buy him a $300 gift certificate each semester that can only be used to buy books. Diagram Bobby's budget constraint when he has the gift certificate in addition to his $500 income. Is Bobby better-off with the gift certificates? Chapter 4 8) Margaret's optimal consumption is shown in the diagram below for two different prices of Hy-Vee Cola. Decompose the change in Hy-Vee Cola consumption into income and substitution effects. Do the effects work in opposite directions? 9) Suppose that the demand for artichokes (Qa) is given as: Qa = 120 - 4P a. What is the point price elasticity of demand if the price of artichokes is $10? b. Suppose that the price of artichokes increases to $12. What will happen to the number of artichokes sold and the total expenditure by consumers on artichokes? c. At what price if any is the demand for artichokes infinitely elastic? 10) The market supply curve of rubber erasers is given by QS = 35,000 + 2,000P. The demand for rubber erasers can be segmented into two components. The first component is the demand for rubber erasers by art students. This demand is given by qA = 17,000 – 250P. The second component is the demand for rubber erasers by all others. This demand is given by qO = 25,000 – 2000P. Derive the total market demand curve for rubber erasers. Find the equilibrium market price and quantity. Also,
Disregard the new tax from number three. Now assume the government imposes a price ceiling of $100 in this market, as the result of protest of price gouging by sellers. What would happen to the price and quantity in this market?
However, if the school allows a competing student the right to sell ice cream on school property, it could change the price of ice cream. The price of ice cream is lowered due to technology. The invention of better ice cream machines or an idea to make better use of counter space can lower a firm’s cost and raise the quantity of ice cream it supplies. Prices could also be increased due to input prices. Less ice cream is supplied when workers need be paid more, therefore ice cream machines cost more, or even ingredients like
-The role and significance of prices in the market economy has to do with supply and demand. If there are the same amount of buyers as products, the price will settle. If there are more buyers than products, the price of the product will rise. And, if there are more products than buyers, the price of the product will decrease. This occurs until the supply of the product matches the demand of the product.
#5. Other things equal, what effects would each of the following have on aggregate demand or aggregate supply? In each case use a diagram to show the expected effects on the equilibrium price level and the level of real output.
a. This particular industry has a constantly increasing cost. There will be an increase in the demand for input factors for one key reason. Every day, new companies will be introduced into this market of remodeling, economic profits being the encouraging factor. Because of this, there will be a bid up on input prices for the companies in the industry of remodeling. “When a market is characterized by a large number of small producers, the demand curve facing the manager of each individual firm is horizontal at the price determined by the
d. Calculate the price elasticity of demand in each market and discuss these in relation to the prices to be charged in each market.
availability of substitutes, and justify how you determine the price elasticity of demand for your firm’s product. b) Explain the factors that affect consumer responsiveness to price changes for this product, using the concept of price
The new audio greeting message affects the demand for greeting cards. The demand for greeting cards decreases because greeting cards and audio greeting cards are substitutes. The demand curve for greeting cards pads shifts leftward, from D0 to D1 in Figure 4.6. Simultaneously the fall in the cost of producing a greeting card affects the supply. The fall in the cost of producing greeting cards increases the supply and the supply curve shifts rightward, from S0 to S1 in Figure 4.6. At the initial price of a greeting card, $5.00 in Figure 4.6, there is a surplus of 60 greeting cards per week. The surplus forces the price lower, so the equilibrium price of a greeting card
2.) Which curve(s) change and based on the lists in the text of what causes demand and supply to shift what are the causes of theses shifts? D1 changed moving leftward indicating a decrease in demand due to a technological change: a technological setback causes a decrease. This causes price to go down as well as the demand is lower.
The market price of a good is determined by both the supply and demand for it. In the world today supply and demand is perhaps one of the most fundamental principles that exists for economics and the backbone of a market economy. Supply is represented by how much the market can offer. The quantity supplied refers to the amount of a certain good that producers are willing to supply for a certain demand price. What determines this interconnection is how much of a good or service is supplied to the market or otherwise known as the supply relationship or supply schedule which is graphically represented by the supply curve. In demand the schedule is depicted graphically as the demand curve which represents the
2. The quantity of peanuts supplied increased from 40 tons per week to 60 tons per week when the price of peanuts increased from $4 per ton to $5 per ton. The price elasticity of supply for peanuts over this price range is
Evaluate each of the following changes in supply and/or demand. How will each affect equilibrium price and quantity in a competitive market? Will price and quantity rise, fall, or be unchanged? Based on shifts, will the answers be indeterminate?
When price elasticity of demand is elastic, the coefficient will be greater than one. When a percent price change occurs quantity demanded responds strongly there will be a large change in quantities consumers purchase. There is price sensitive in this scenario. If price elasticity of demanded is inelastic the coefficient will be less than one. When a percent price change occurs quantity demanded does not respond strongly then there is a slight change in quantities consumers will purchase. There a weak price sensitive in this scenario. Lastly, if price elasticity of demanded is unit elastic the coefficient will be equal to one. Whenever there is a percent change in price there is an equally matched percent change in quantity demanded. This scenario is rare.
An example of share of consumer income devoted to a good is sugar versus a 20 lb. bag of Pedigree dog food. If the price on these items were increased by 15%, consumers would notice the price on the dog food before the sugar. Normally, the dog food costs approximately $15 and the bag of sugar normally costs $3. The dog food’s price would increase to $17.25, while the bag of sugar would only cost $3.45. Consumers would still purchase the sugar and would have no impact on the demand; however, consumers may begin looking for substitutes for the dog food, which will begin decreasing the company’s revenue.