Econ Ch 4 hw 2

Market equilibrium and disequilibrium The following graph shows the monthly demand and supply curves in the market for shirts. Use the graph input tool to help you answer the following questions. You will not be graded on any changes you make to this graph. Note: Once you enter a value in a white field, the graph and any corresponding amounts in each grey field will change accordingly. The equilibrium price in this market is $_____ per shirt, and the equilibrium quantity is ____ shirts bought and sold per month. Complete the following table by indicating at each price whether there is a shortage or surplus in the market, the amount of that shortage or surplus, and whether this places upward or downward pressure on prices. TABLE: Price ($s per shirt); Shortage or Surplus; Shortage or Surplus Amount (Shirts); Pressure: 40; _______; ___; ________ 60; _______; ___; ________

$50, 250 40; Shortage; 40; Upward 60; Surplus; 40; Downward

Movements along versus shifts of demand curves Consider the market demand for hot dogs. Complete the following table by indicating whether an event will cause a movement along the demand curve for hot dogs or a shift of the demand curve for hot dogs, holding all else constant.

Movement Along: A decrease in the price of hot dogs Shift: An increase in income of consumers A change in tastes of consumers that makes them desire more hot dogs

Market equilibrium The following table shows the monthly demand and supply in the market for shorts in Denver. Price ($s per pair of shorts); Quantity Demanded (Pairs of shorts); Quantity Supplied (Pairs of shorts): 6; 1,650; 300 12; 1,350; 600 18; 1,200; 750 24; 900; 1,350 30; 750; 1,800 On the following graph, plot the demand for shorts using the blue point (circle symbol). Next, plot the supply of shorts using the orange point (square symbol). Finally, use the black point (plus symbol) to indicate the equilibrium price and quantity in the market for shorts. Note: Plot your points in the order in which you would like them connected. Line segments will connect the points automatically.

Demand: (1,650, 6); (1,350, 12); (1,200, 18); (900, 24); (750, 30) Supply: (300, 6); (600, 12); (750, 18); (1,350, 24); (1,800, 30) Equilibrium (1,050, 21) Equilibrium Notes when both lines meet up at 1 point.

Shifts in supply or demand I The following graph shows the market for cereal in Philadelphia, where there are over 1,000 stores that sell cereal at any given moment. Suppose the Surgeon General issues a public statement saying that consuming cereal is good for your health. Show the effect of this change on the market for cereal by shifting one or both of the curves on the following graph, holding all else constant. Note: Select and drag one or both of the curves to the desired position. Curves will snap into position, so if you try to move a curve and it snaps back to its original position, just drag it a little farther. Now suppose Congress passes a new tax that decreases the income of Philadelphia residents. If cereal is a normal good, this will cause the demand for cereal to _______.

Graph: Move the Demand up on the scale up D2 Up 1 unit Decrease

Shifts in supply or demand II The following graph shows the market for cakes in Miami, where there are over 1,000 bakeries at any given moment. Suppose cake sellers expect that tomorrow the price of cake will be significantly higher than today's price. Show the effect of this change on the market for cakes by shifting one or both of the curves on the following graph, holding all else constant. Note: Select and drag one or both of the curves to the desired position. Curves will snap into position, so if you try to move a curve and it snaps back to its original position, just drag it a little farther.

Graph: Move the Supply up one unit

Markets and competition In a perfectly competitive market, all producers sell _________ goods or services. Additionally, there are ______ buyers and sellers. Because of these two characteristics, both buyers and sellers in perfectly competitive markets are price _________. True or False: The market for public utilities, such as gas and electricity, exhibits the two primary characteristics that define perfectly competitive markets.

Identical, many, takers False

Disequilibrium Suppose the market for cars is unregulated. That is, car prices are free to adjust based on the forces of supply and demand. If a shortage exists in the car market, then the current price must be _______ than the equilibrium price. For the market to reach equilibrium, you would expect _________.

Lower, buyers to offer higher prices

Movements along versus shifts of supply curves Consider the market supply of donuts. Complete the following table by indicating whether an event will cause a movement along the supply curve for donuts or a shift of the supply curve for donuts, holding all else constant.

Movement Along: An increase in the price of donuts Shift A change in expectations about the future price of donuts An increase in the number of producers

Individual and market demand Suppose that Musashi and Rina are the only consumers of shoes in a particular market. The following table shows their annual demand schedules: Price ($ per pair); Musashi's Quantity Demanded (Pairs); Rina's Quantity Demanded (Pairs): 10; 32; 56 20; 20; 40 30; 12; 24 40; 4; 12 50; 0; 4 On the following graph, plot Musashi's demand for shoes using the green points (triangle symbol). Next, plot Rina's demand for shoes using the purple points (diamond symbol). Finally, plot the market demand for shoes using the blue points (circle symbol). Note: Line segments will automatically connect the points. Remember to plot from left to right.

Musashi's Demand: (32, 10); (20, 20); (12, 30); (4, 40); (0, 50) Rina's Demand: (56, 10); (40, 20); (24, 30); (12, 40); (4, 50) Market Demand (88, 10); (60, 20); (36, 30); (16, 40); (4, 50) Market Demand Note: just add both pairs together.

Supply: Basic concepts Complete the following table by selecting the term that matches each definition. Apply your understanding of the previous key terms by completing the following scenario with the appropriate terminology. Your coworker Teresa is really concerned about a project that she has just been assigned. She is in charge of analyzing and determining conditions in the market for televisions from an extensive sales report. If Teresa's boss is interested in a graphical presentation of the relationship between the price and quantity of televisions supplied, you would advise your coworker to construct _________ using the data provided. However, if Teresa's boss is more interested in the detailed numbers used to construct this visual representation, you would instead advise your coworker that a ________ would be more appropriate.

The claim that, other things being equal, the quantity supplied of a good increases when the price of that good rises - Law of Supply A table showing the relationship between the price of a good and the amount of it that sellers are willing and able to supply at various prices - Supply Schedule The amount of a good that sellers are willing and able to supply at a given price - Supply Curve A graphical object showing the relationship between the price of a good and the amount that sellers are willing and able to supply at various prices - Quantity Supplied A supply curve; supply schedule

Demand terminology Complete the following table by selecting the term that matches each definition. Apply your understanding of the previous key terms by completing the following scenario with the appropriate terminology. Your coworker Andrew is really concerned about a project that he has just been assigned. He is in charge of analyzing and determining conditions in the market for televisions from an extensive sales report. If Andrew's boss is interested in a graphical representation of the relationship between the price and quantity of televisions demanded, you would advise your coworker to construct ___________ using the data provided. However, if Andrew's boss is more interested in the detailed numbers used to construct this visual representation, you would instead advise your coworker that __________ would be more appropriate.

The claim that, with other things being equal, the quantity demanded of a good falls when the price of that good rises - Law of Demand The amount of a good that buyers are willing and able to purchase at a given price - Quantity Demanded A graphical object showing the relationship between the price of a good and the amount of the good that buyers are willing and able to purchase at various prices - Demand Curve A table showing the relationship between the price of a good and the amount that buyers are willing and able to purchase at various prices - Demand Schedule A demand curve, a demand schedule

Individual and market supply Suppose that Van and Amy are the only suppliers of shoes in a particular market. The following table shows their annual supply schedules: Price ($s per pair); Van's Quantity Supplied (Pairs); Amy's Quantity Supplied (Pairs) 10; 0; 16 20; 16; 32 30; 24; 44 40; 28; 52 50; 32; 56 On the following graph, plot Van's supply of shoes using the green points (triangle symbol). Next, plot Amy's supply of shoes using the purple points (diamond symbol). Finally, plot the market supply of shoes using the orange points (square symbol). Note: Line segments will automatically connect the points. Remember to plot from left to right.

Van's Demand: (0, 10); (16, 20); (24, 30); (28, 40); (32, 50) Amy's Demand: (16, 10); (32, 20); (44, 30); (52, 40); (56, 50) Market Demand (16, 10); (48, 20); (68, 30); (80, 40); (88, 50) Market Demand Note: just add both pairs together.