Assignment 1
How do economists define the law of demand?
A negative, or inverse, relationship between quantity demanded and price.
Households ________ in output markets and ________ in input markets.
demand; supply
Consumer surplus is $ 18
Consumer surplus = ½ (6 - 3) x 12 = $18.
Find the new equilibrium price and quantity of pizza?
Equilibrium: To find the new equilibrium price and quantity, equate the new demand and the existing supply curves and solve for P and Q. Qd = 600 - 40P Qs = 20P - 100 600 - 40P = 20P - 100. Solve for P to get the equilibrium price, P*. Substitute P* into either the demand or the supply function to get equilibrium quantity, Q*. The new equilibrium price is $ 11.67 per pizza. (Round your response to the nearest penny.) The new equilibrium quantity is 133.33 pizzas. (Round your response to the nearest whole number.)
When quantity demanded exceeds quantity supplied, price tends to fall.
False
Now suppose that prices did not change immediately. Sellers decided not to adjust price even though the quantity demanded is below supply. If prices did not change following the drop in demand, the number of homes for sale (the inventory of unsold new homes) would:
If prices did not change following the drop in demand, the number of homes for sale (the inventory of unsold new homes) would remain at 50,000 units.
Suppose the market demand for pizza is given by Qd = 300minus20P. The market supply for pizza is given by Qs = 20Pminus100, where P = price (per pizza). Graph the supply and demand schedules for pizza using $5 through $15 as the value of P.
In equilibrium , 100 pizzas would be sold at a price of $10 per pizza.
Indicate whether the following statements are examples of positive economic analysis or normative economic analysis . A devaluation of the U.S. dollar would increase exports from the United States: Positive . Increasing the federal tax on gasoline would cause shipping costs in the United States to increase: Positive . Florida should devote all revenues from its state lottery to improving public education: Normative . Eliminating the trade embargo with Cuba would increase the number of Cuban cigars available in the United States: Positive . As a public safety measure, the state of Texas should not pass legislation that allows people with concealed handgun permits to carry concealed weapons on college campuses: Normative
Normative economic analysis: An approach to economics that analyzes outcomes of economic behavior, evaluates them as good or bad, and may prescribe courses of action. Positive economic analysis: An approach to economics that seeks to understand behavior and the operation of systems without making judgments. It describes what exists and how it works.
The following equations describe the supply and demand for crude oil in the United States in the mid-1980s: Upper Qs = minus2 + (1/2)P Upper Qd = 15minus(1/4)P where price is given in dollars and quantity in millions of barrels per day. The domestic equilibrium price is $22.67 per barrel with 9.3 million barrels traded per day. If the world price is below this equilibrium price, a domestic shortage will develop. We can deal with this shortage by purchasing crude oil from foreign suppliers. Determine the quantity of imports when the world price is $12.00 per barrel.
P = 12. Import = Qd - Qs =8. At this price, imports are 8 million barrels per day.
Producer surplus is $ 9
Producer surplus = ½ (3minus1.50) times 12 = $9. Roll your mouse over the shaded regions.
If suppliers set the price of pizza at $15, the surplus would be 200 pizzas.
Surplus: To calculate surplus, plug the non-equilibrium price into the equations for the demand and supply curves and find the difference. Therefore: Qd = 300 - 20(15) Qd = 0. Qs = 20(15) - 100 Qs = 200.
Every Friday night, Gustavo pays $49.99 to eat nothing but crab legs at the all-you-can-eat seafood buffet at the M Resort in Las Vegas. On average, he consumes 40 crab legs each Friday.
The average cost is: Total cost/ Quantity. The average cost of each crab leg to Gustavo is $ 1.25.
Suppose the market demand for a cup of cappuccino is given by QD = 24minus4P and the market supply for a cup of cappuccino is given by QS = 8Pminus12, where P = price (per cup). Graph the supply and demand schedules for cappuccino. 1.) Using the line drawing tool, draw the demand curve for cappuccino. Label your line 'D'. 2.) Using the line drawing tool, draw the supply curve for cappuccino. Label your line 'S'. 3.) Using the point drawing tool, plot the equilibrium price and quantity. Label your point 'E'.
The equilibrium price is calculated as: 24 - 4P = 8P - 12 36 = 12P P = 3. The equilibrium quantity is calculated as: QD = 24 - 4(3) = 24 - 12 = 12.
The equilibrium price is $ 3 and the equilibrium quantity is 12.
The equilibrium price is calculated as: 24minus4P = 8Pminus12 36 = 12P P = 3. The equilibrium quantity is calculated as: QD = 24minus4(3) = 24minus12equals12.
Now suppose that the supply of new homes put on the market dropped, but price still stayed the same at $200,000. This could only have occurred if:
The graph below shows what would happen if the supply of new homes put on the market were to drop but price still stayed the same at $200,000.
The marginal cost of an additional crab leg is $0
The marginal cost is the additional cost of an additional crab leg. The marginal cost is $0. Marginal cost formula = change in total cost/change in quantity
If this market behaved like most markets, you would expect:
equilibrium quantity and price to fall. When demand shifts and supply does not, equilibrium price and quantity fall.
If the current price of a product is below the market equilibrium price, there is ________ of this product.
excess demand, or a shortage
Firms ________ in output markets and ________ in input markets.
supply; demand
In order for an economy to be successful, there must be some form of organization. Firms produce products that are marketed and sold. There must be people who desire to purchase and consume the products that are produced by the firms. This group of individuals that consumes the products that are produced in a market economy are known as households . Which of the following is true in a market economy?
Households: They are the consuming units in the economy and the suppliers of factor inputs (such as labor and land).