ECO2023800 - Chapter 3 Homework

True or False: A "change in quantity demanded" is a shift of the entire demand curve to the right or to the left.

False

Label each of the following scenarios with the correct combination of price change and quantity change. In some scenarios, it may not be possible from the information given to determine the direction of a particular price change or a particular quantity change. We will symbolize those cases as, respectively, "P?" and "Q?". a. On a hot day, both the demand for lemonade and the supply of lemonade increase. b. On a cold day, both the demand for ice cream and the supply of ice cream decrease. c. When Hawaii's Mt. Kilauea erupts violently, the demand on the part of tourists for sightseeing flights increases but the supply of pilots willing to provide these dangerous flights decreases. d. In a hot area of Arizona where they generate a lot of their electricity with wind turbines, the demand for electricity falls on windy days as people switch off their air conditioners and enjoy the breeze. But at the same time, the amount of electricity supplied increases as the wind turbines spin faster.

Price Quantity a. P? Increase b. P? Decrease c. Increase Q? d. Decrease Q?

In which of these two statements are the terms "supply" and "demand" used correctly? A. "In the corn market, demand often exceeds supply and supply sometimes exceeds demand." B. "The price of corn rises and falls in response to changes in supply and demand."term-6

Statement B

Refer to the table below. Fill in the surplus-shortage column (gray-shaded cells). Thousands Bushels Demanded Price Thousands Bushels Supplied 88 $3.40 65 81 $3.70 71 75 $4.00 75 70 $4.30 78 66 $4.60 80 63 $4.90 81 a. What is the equilibrium price in this market? At what price is there neither a shortage nor a surplus? b. Graph the demand for wheat and the supply of wheat. Be sure to locate the equilibrium price and quantity. c. How big is the surplus or shortage at $3.40? There is a (Click to select) of ________ thousands of bushels How big is the surplus or shortage at $4.90? There is a (Click to select) of ________ thousands of bushels d. How big a surplus or shortage results if the price is 60 cents higher than the equilibrium price? ________ thousands of bushels e. How big a surplus or shortage results if the price is 30 cents lower than the equilibrium price? ________ thousands of bushels

Surplus (+) or Shortage (-) -23 -10 0 +8 +14 +18 a. $4.00, $4.00 b. Eq: $4.0 connected to 75 Supply: Dot on $3.4/65, $3.7/71, $4.0/75, $4.3/78, $4.6/80 and $4.9/81 Demand: Dot on $3.4/88, $3.7/81, $4.0/75, $4.3/70, $4.6/66 and $4.9/63 c. Shortage, 23 Surplus, 18 d. 14 e. 10

ADVANCED ANALYSIS Assume that demand for a commodity is represented by the equation P=10−0.2Qd Supply is represented by the equation P=2+0.2Qs, where Qd and Qs are quantity demanded and quantity supplied, respectively, and P is price. a. Using the equilibrium condition Qs = Qd, determine equilibrium price. b. Now determine equilibrium quantity. _______ units

a. $6 b. 20

a. Which statement is consistent with the law of demand? b. Which of the following characteristics lead to a downward-sloping demand curve? c. How is a market demand curve derived from individual demand curves?

a. A reduction in market price will lead to an increase in quantity demanded. b. Diminishing marginal utility, An increase in purchasing power as market price decreases c. Add up quantities demanded by all individual consumers for each price.

a. Which statement is consistent with the law of supply? b. Which of the following characteristics leads to an upward-sloping supply curve? c. How do you derive a market supply curve from individual supply curves?

a. An increase in market price will lead to an increase in quantity supplied. b. Increasing opportunity costs, Increasing marginal costs c. Add up quantities supplied by all individual producers for each price

In 2001 an outbreak of hoof-and-mouth disease in Europe led to the burning of millions of cattle carcasses. What impact do you think this had on the following? a. The supply of cattle hides: (Click to select) Decrease Increase No change . b. Hide prices: (Click to select) No change Increase Decrease . c. The supply of leather goods: (Click to select) Increase No change Decrease . d. The price of leather goods: (Click to select) No change Decrease Increase .

a. Decrease b. Increase c. Decrease d. Increase

Critically evaluate: "In comparing the two equilibrium positions in the diagram below, I note that a smaller amount is actually demanded at a lower price. This refutes the law of demand." a. A decrease in demand from D1 to D2 results in (Click to select). b. This causes the price to (Click to select). c. This change in price results in (Click to select) in quantity demanded along the D2 demand curve. d. This change in price results in (Click to select) in quantity supplied. e. The new equilibrium has a (Click to select) and a (Click to select) when compared to the original equilibrium. f. Does this refute the law of demand: (Click to select) No Yes . g. Why: (Click to select).

a. Surplus b. fall c. an increase d. a decrease e. lower price, lower quantity f. No g. Because there was a change in demand

Suppose the total demand for wheat and the total supply of wheat per month in the Kansas City grain market are as shown in the table below. Thousands Bushels Demanded Price Thousands Bushels Supplied 85 $3.40 71 80 $3.70 73 75 $4.00 75 70 $4.30 77 65 $4.60 79 60 $4.90 81 Suppose that the government establishes a price ceiling of $3.70 for wheat. a. What might prompt the government to establish this price ceiling? b. In the diagram below, demonstrate this price ceiling of $3.70. c. Next, suppose that the government establishes a price floor of $4.60 for wheat. What will be the main effect of this price floor?

a. To control food prices b. Supplied $3.7 and 73 ; Demanded $3.7 and 80 c. It will create a surplus.