Chapter 4, Problem 1P

(a)

To determine

Draw the demand and supply curve.

Explanation of Solution

Figure 1 illustrates the demand and supply curve of the Norwegian artist Edvard Munch’s ‘The scream’ when it sold for $119.9 million.

In Figure 1, the horizontal axis measures the quantity and the vertical axis measures the price. The vertical supply curve in Figure 1 indicates that the supply remains unchanged with different price levels (Perfectly inelastic supply). The diagram shows that the quantity demanded would be equal to the quantity supplied at a price of $199.9.

Economics Concept Introduction

Quantity demanded: The quantity demanded is the amount of a product that a household would buy in a given period if it could buy all it wanted at the current market price.

Quantity supplied: The quantity supplied is the amount of a particular product that a firm would be willing and able to offer for sale at a particular price during a given time period.

(b)

To determine

Draw the demand and supply curve.

Explanation of Solution

Figure 2 illustrates the demand and supply curve of the hog business in the U S.

In Figure 2, the horizontal axis measures the quantity and the vertical axis measures the price. In 2013, the supply of hogs decreases, which shifts the supply curve from ${\text{S}}_0$ to ${\text{S}}_1$. As a result, the quantity supplied decreases from ${\text{Q}}_0$ to ${\text{Q}}_1$ and the price level increases from $0.75 to $0.98.

Economics Concept Introduction

Quantity demanded: The quantity demanded is the amount of a product that a household would buy in a given period if it could buy all it wanted at the current market price.

Quantity supplied: The quantity supplied is the amount of a particular product that a firm would be willing and able to offer for sale at a particular price during a given time period.

(c)

To determine

Draw the demand and the supply curve.

Explanation of Solution

Figure 3 illustrates the demand and supply curve of the houseplants.

In Figure 3, the horizontal axis measures the quantity and the vertical axis measures the price. The increasing demand for plants shifts the demand curve of the Gasoline from ${\text{D}}_{\text{o}}$ to ${\text{D}}_1$ and at the same time, the increasing supply of low cost plants shifts the supply curve from ${\text{S}}_{\text{o}}$ to ${\text{S}}_1$. As a result, the quantity supplied increases from ${\text{Q}}_0$ to ${\text{Q}}_1$ and the price level decreases from ${\text{P}}_0$ to ${\text{P}}_1$. The change in the price depends on the magnitude change in the supply and demand.

Economics Concept Introduction

Quantity demanded: The quantity demanded is the amount of a product that a household would buy in a given period if it could buy all it wanted at the current market price.

Quantity supplied: The quantity supplied is the amount of a particular product that a firm would be willing and able to offer for sale at a particular price during a given time period.