Essay on Supply and Demand and Equilibrium Price

720 Words Apr 8th, 2013 3 Pages
Individual Assignment #1

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:
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Market: soy beans.

4. Given the following data for individuals, draw the market demand curve and market supply curve for CDs. Assume that these are the only individuals in the entire market. Price is per CD.

|Price |$8.00 |$8.50 |$9.00 |$9.50 |$10.00 |$10.50 |
|Quantity demanded in units per week |
|Mark |3 |3 |1 |0 |0 |0 |
|Lynn |8 |7 |6 |3 |2 |1 |
|Jason |6 |5 |4 |3 |0 |0 |
|Erin |10 |9 |7 |6 |4 |2 |
|Quantity supplied in units per week |
|Jeff |0 |1 |2 |3 |4 |6 |
|Beth |2 |3 |3 |4 |6 |7 |
|Chris |0 |1 |2 |3 |5 |6 |
|Abby |1 |1 |2 |2 |3 |5 |

a. What would be the equilibrium price and quantity in this market?

b. Which would there be—excess demand or excess supply—at a price of $8.00? How much? What about at a price of $10.00?

c. If the price of a CD was initially set at $9.00 but the price was allowed to adjust, would the price
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