For Professor Ryan
Moe63
h_sd_sp14_online.docName .
Economics 1 Online Supply & Demand Exercises b Page 4
Irvine Valley College Homework – Supply & Demand
Economics 1
Mark McNeil
In the first seven questions below, you are given a market that is assumed to be in equilibrium at price P1 and quantity Q1. Then something happens in the market that affects the supply or demand (or both). You are then asked to explain the changes that occur in the market.
If a change in supply or demand (a shift) has occurred, you must explain the reason for this shift. The reason for the shift should be one of the non-price determinants of supply or demand shown below.
Demand Supply
1. Income 1. Resource Prices
2. Tastes and Preferences 2. Technology
3. Related Goods 3. ?
4. The Number of Buyers 4. The Number of Sellers
5. Consumer Expectations 5. Producer Expectations
6. Per Unit Taxes and Subsidies
Show the changes on the diagram and indicate the new equilibrium price P2 and the new equilibrium quantity Q2.
Finally, please be careful to distinguish between a change in demand or supply (a shift caused by one of the non-price determinants of demand or supply) and a change in quantity demanded (a movement along an existing curve) which is caused by a change in the price of the good itself.
I recommend that you watch the supply and demand videos at http://www.mcneilecon.com on the video page, then do the supply and demand exercises, both level 1 and level 2, that you will find on the “Exercises” page:
http://faculty.ivc.edu/mmcneil/econ1/exercises1/exercises1.html
|
|
|
|
|
|
|
|
|
|
An example:
0. The Market: iPods
The Event: Microsoft finally perfects the Zune. It is a much better music player than the iPod. Strikes in China cripple the production of iPads. Half of the iPod production is stopped until the strikes are settled.
|
|
Show what happens to the supply curve, the demand curve, equilibrium price, and equilibrium quantity. The symbols: shift right —>, shift left <— , increase ↑, decrease ↓, no change - Ø, indeterminant - ? The change in supply (if any) is caused by: The change in demand (if any is caused by: |
Supply Demand Eq. P Eq. Q <— <— ? ↓ Related good - Substitute Either Resource Costs or # of sellers
|
Show the changes on the diagram (or simply copy and paste the correct diagram from the gallery above).
1. The Market: Peanut Butter
The Event: The “peanut beetle” invades the peanut crops, 50% of the peanut plants are destroyed.
|
|
Show what happens to the supply curve, the demand curve, equilibrium price, and equilibrium quantity. The symbols: shift right —>, shift left <— , increase ↑, decrease ↓, no change - Ø, indeterminant - ? The change in supply (if any) is caused by: The change in demand (if any is caused by: |
Supply Demand Eq. P Eq. Q <— Ø ↑ ↓ Supply decreases – resource prices No demand change, (Qd only)
|
Show the changes on the diagram (or simply copy and paste the correct diagram from the gallery above).
2. The Market: Automobiles (US Market)
The Event: Because of budget problems, the roads of this country fall into a serious state of disrepair. They are almost impassible, and quite dangerous to drive on. You see lots of people riding burros.
|
|
Show what happens to the supply curve, the demand curve, equilibrium price, and equilibrium quantity. The symbols: shift right —>, shift left <— , increase ↑, decrease ↓, no change - Ø, indeterminant - ? The change in supply (if any) is caused by: The change in demand (if any is caused by: |
Supply Demand Eq. P Eq. Q
|
Show the changes on the diagram (or simply copy and paste the correct diagram from the gallery above).
3. The Market: Fresh flowers
The Event: New “superseeds” are developed that grow more flowers faster and with less water. People now love flowers in their homes. It seems like they are in every room in every home.
|
|
Show what happens to the supply curve, the demand curve, equilibrium price, and equilibrium quantity. The symbols: shift right —>, shift left <— , increase ↑, decrease ↓, no change - Ø, indeterminant - ? The change in supply (if any) is caused by: The change in demand (if any is caused by: |
Supply Demand Eq. P Eq. Q
|
Show the changes on the diagram (or simply copy and paste the correct diagram from the gallery above).
4. The Market: Solar Panels
The Event: Solar panel manufacturers are now heavily subsidized by the government. The government pays about 20% of the cost of manufacturing these solar panels. Edison Company electricity rates rise greatly – it’s because of fuel costs or something.
|
|
Show what happens to the supply curve, the demand curve, equilibrium price, and equilibrium quantity. The symbols: shift right —>, shift left <— , increase ↑, decrease ↓, no change - Ø, indeterminant - ? The change in supply (if any) is caused by: The change in demand (if any is caused by: |
Supply Demand Eq. P Eq. Q
|
Show the changes on the diagram (or simply copy and paste the correct diagram from the gallery above).
5. The Market: Clothes at the Thrift Store (like Goodwill or the Salvation Army)
The Event: Incomes rise greatly as the economy improves.
|
|
Show what happens to the supply curve, the demand curve, equilibrium price, and equilibrium quantity. The symbols: shift right —>, shift left <— , increase ↑, decrease ↓, no change - Ø, indeterminant - ? The change in supply (if any) is caused by: The change in demand (if any is caused by: |
Supply Demand Eq. P Eq. Q
|
6. The Market: Mobile Phones
The Event: New Android and iPhones are brought to market. They are very popular. Studies are now showing a significant danger of brain cancer from mobile phone use.
|
|
Show what happens to the supply curve, the demand curve, equilibrium price, and equilibrium quantity. The symbols: shift right —>, shift left <— , increase ↑, decrease ↓, no change - Ø, indeterminant - ? The change in supply (if any) is caused by: The change in demand (if any is caused by: |
Supply Demand Eq. P Eq. Q
|
7. I (the legislature) am planning to help donut consumers; they’re having a terrible time, you know. I’m going to impose a law that establishes a maximum price for donuts of $0.10 each. It will be illegal to sell donuts for more than 10 cents.
a. Does this law impose a ceiling or floor? Explain.
b. Can you predict the consequences of this law? Use the diagram to help in your explanation. The current price of donuts is P1. (2 Points)
IVC
IVC
8. Person A earns $26,300 and pays $3,340 in taxes. Person B earns $242, 900 and pays 23,100 in taxes. Calculate the tax’s percent of income for Person A and Person B. Is this tax progressive, regressive, or proportional. Show any calculations and explain briefly. (1 point) There is a video on taxes that can help you with this one.
9. What are the two characteristics of a public good? Give an example or two. How do public goods lead to the “free rider” problem? (There are references to the free rider problem in the text –, and one of the tutorial videos deals with public goods and externalities at http://www.mcneilecon.com ) (1 point)
