Econ 201 Homework: Ch. 3: Demand and Supply

Which phrase do we use to indicate that we are trying to study the relationship between two variables while the values of all other variables are held unchanged? --- Why is this restriction so useful in economic analysis?

ceteris paribus --- If every variable is allowed to change, it would be impossible to isolate the impact of one variable on another.

The price that results when quantity demanded equals quantity supplied is most correctly called the --- A surplus exists

equilibrium price. --- when quantity supplied exceeds quantity demanded.

The maximum amount of a product that sellers are willing and able to provide for sale over a relevant range of prices, holding all other factors constant, is called --- When the market price of a good increases, the amount that sellers are willing to offer for sale increases. This statement is best described as

supply --- the law of supply

a. Producer surplus is the difference between --- b. Producer surplus is shown graphically as the area

the maximum price a buyer is willing to pay and the market price. --- above the supply curve and below the market price.

a. Consumer surplus is equal to the difference between --- b. Consumer surplus is shown graphically as the area

the maximum price a buyer is willing to pay and the market price. --- under the demand curve and above the market price.

The law of supply explains

the positive relationship between price and quantity supplied.

The concept of demand is best described as --- The basic proposition of the law of demand is that

the quantity of a good or a service that people are willing and able to purchase at different possible prices. --- as the price of a good increases, buyers are willing and able to purchase less.

This year is expected to be a great one for selling walking shoes in Georgia. At very low prices, only the most efficient shoemakers are able to sell. There are two shoe producers that operate with the most cost-effective equipment and skilled personnel, each of which can put 1000 pairs of shoes in the market at $10.00. At a higher price, eight more shoemakers will enter the market. Each producer makes 1200 pairs of shoes at $25.00 per pair. If the price goes to $40.00 per pair, the existing firms increase production to 1400 pairs of shoes each, plus four small shops open, each of which produces 500 pairs of shoes. Using the information above, graph the supply curve for walking shoes by dragging the provided red points to the correct coordinates of price and quantity.

(2000, 10) (12,000, 25) (16,000, 40)

Consider the table below. Assuming the law of demand holds, the cell labeled "?" could be which of the following quantities? Price of a movie/Quantity of movies Demanded $15/169 $17/?

157

The graph shows the market for corn with a price ceiling of $7. Fill in the blanks with the correct terms and numbers.After the price ceiling is in place, how many bushels of corn are bought or sold

After the price ceiling is in place, how many bushels of corn are bought or sold? 5 --- The market is not in equilibrium after the price ceiling is imposed. Rather, there is a _____ of how many units? Shortage; 5.86 bushels

The graph shows the market for milk when the government imposes a price floor of $5. Fill in the blanks with the correct terms and numbers up to two decimal places.

After the price floor is in place, how many units of milk are bought or sold? 2.93 --- The market does not clear after the price floor is imposed. Rather, there is a ______ of how many gallons? surplus, 3.66

Stone and brick are substitutes in home construction. Consider the market for bricks depicted below. Suppose the price of stone increases due to new regulations for the stone quarrying industry. Illustrate the impact this will have on the market for bricks.

Demand curve shifts right. Equilibrium price: increases Equilibrium quantity: increases

The figure shows the supply and demand for online music. Suppose that an economic downturn decreases household wealth and erodes consumer confidence. Move the supply and/or demand curves to reflect the primary effect this would have on the market for online music. You can assume that online music is a normal good. Also select the end result of equilibrium price and quantity.

Demand curves shifts left/down Equilibrium price: decreases Equilibrium quantity: decreases

Determine how the equilibrium price and equilibrium quantity in the market for coffee changes if * the price of tea, a substitute for coffee, decreases, * and due to better weather, the price of coffee beans also decreases.

Equilibrium price: decreases. Equilibrium quantity: may increase, decrease, or stay the same.

Andrew, a college student, loves drinking coffee late at night to study for exams. Having no income, he is used to buying cheap, bad-tasting coffee, such as Beanlightened, that he needs to grind and brew himself. The coffee tastes putrid but, with enough cream and sugar, Andrew is able to tolerate it. Occasionally, he does go out to Starbucks when he has spare money. After graduation, Andrew gets a job working at a database firm as a programmer. His income is now a healthy $75,000 a year, and he decides he has had enough bad-tasting coffee. He ends up buying coffee daily from Starbucks, even though it costs significantly more than Beanlightened.

In economic terms, Starbucks coffee is for Andrew a(n)normal good Beanlightened coffee is for Andrew a(n)inferior good. Andrew's demand for Starbucks coffee changed as a result ofa change in income.

Sort the following scenarios according to whether they would cause a shift in the demand curve or movement along a demand curve.

Shift of the Demand Curve: Out in in a burger joint with an absurd National following in the u.s. sells more Burgers as the price of chicken increases After it earns first prize in the spicy category of a Ramen tasting competition college students buy more remain brand ramen noodles --- Movement Along the Demand Curve: Natori raises the price for its laundry detergent which results in Less sales and strange sense around the college dorm floors Le Bureau at Chase offers a one weekend clearance sale on his old model of desks which causes students to rush to upgrade their dorm furniture

Sort the following scenarios into whether the change in quantity described is caused by a shift in the supply curve or movement along a supply curve.

Shift of the supply curve: More cans of tuna hit the shelves at all major grocers after it was discovered that flash steaming tuna before using mechanical processes to extract meat allows for the removal of more tuna flesh. Amplitude decides to join the smartphone market. --- Movement along the supply curve: Americans put up their gold and silver jewelry for sale as a result of rising prices. A local fight club supplies less of its premium quality soap as a result of lower prices.

Suppose the cost of lithium-ion batteries, an input into the production of electric vehicles, has dropped more steeply than expected. The accompanying graph depicts a market for electric vehicles. Demonstrate the effect of a reduction in the price of lithium-ion batteries by adjusting the accompanying diagram.

Supply curve shifts right. Equilibrium price: decreases Equilibrium quantity: increases

Suppose the market for dodgeballs is competitive and in equilibrium. What will happen in the market if: 1. games using dodgeballs become hugely popular 2. the price of rubber, an input into the production of dodgeballs, increases Assume that all dodgeballs are made of rubber and there are no close substitutes.

The competitive equilibrium priceincreases The competitive equilibrium quantitychanges ambiguously

The graph shows a market where the government has imposed a price ceiling. For each question, select the area or areas described after the ceiling is in place.

What is the consumer surplus? A+B+E What is the producer surplus? J What is the deadweight loss of the price ceiling?C+F

Use the table to answer questions about the demand for and supply of Blu-ray movies. Price per movie/Quantity of movies demanded/Quantity of movies supplied $15/40/80 $12/50/70 $10/60/60 $7/70/50 $5/80/40

What is the equilibrium price per movie? 10 --- At a price of $12 per movie: a surplus of 20 movies occurs

The graph shows a market where the government has imposed a price floor. For each of the three questions, select the area or areas described after the floor is in place.

Which of the areas is the consumer surplus? A Which of the areas is the producer surplus? B+E What is the deadweight loss of the price floor?C+F

For each example, determine how the market for the good in bolded text will respond to the described change.

a. Due to increases in hay prices, an input for raising cattle, the price of a gallon of 2% milk increases from $2.98 to $3.25.quantity demanded decreases b. A company offers a coupon for $6 off the price of laser tag.quantity demanded increases c. A sharp increase in the price of wood causes increases in prices for dressers and desks.quantity demanded decreases d. At a week‑long special at the grocery store, pork shoulder is on sale at $1.99/lb, down from $3.99/lb.quantity demanded increases e. A website offers a buy‑one‑get‑one‑free special for digital music albums.quantity demanded increases

Below is the market for maple syrup. Shade total consumer surplus (CS) on the graph by correctly placing the CS shaded area.

area of triangle under demand curve and above a straight line where d and s meets but still above supply curve on a graph

Below is the market for smartphones. Draw the total producer surplus (PS) on the graph using the shaded area labelled PS.

area of triangle under demand curve and below a straight line where d and s meets but still above supply curve on the graph