Supply and Demand

Name: _________________________________ ECON2302

Module 1 Homework: Supply and Demand

1. A tariff is a tax on imported goods. Suppose the U.S. government implements a tariff on imported flat screen televisions. Explain using supply and demand how this will affect the equilibrium price and quantity of flat screen TVs?

2. Consider the demand for hamburgers. If the price of a substitute good (for example, hot dogs) increases and the price of a complement good (for example, hamburger buns) increases, can you tell for sure what will happen to the demand for hamburgers? Why or why not? Illustrate your answer with a graph.

3. Demand and supply in the market for cheddar cheese is illustrated in table above. Graph the data and find the equilibrium. Next, create a table showing the change in quantity demanded or quantity supplied, and a graph of the new equilibrium, in each of the following situations:

a) What is the surplus or shortage if a price ceiling is set at $3.00.

b) The price of milk, a key input for cheese production, rises, so that the supply decreases by 80 pounds at every price.

c) A new study says that eating cheese is good for your health, so that demand increases by 20% at every price.

4. A government wishes to increase earning for those workers who are on low wages, by introducing minimum wage legislation in order to raise wage level above the equilibrium wage. In doing this, they aim to: Ensure higher wages and Increase the number of works employed

a. Draw a diagram to show the effect of the minimum wage legislation on the market for low paid workers. Include the Qd, Qs, consumer surplus, producer surplus, and deadweight loss.

b. Explain the consequences of minimum wage on the workers.

c. Explain the situation facing employers.

d. Suggest another policy that the government might take to ensure that both goals are achieved.

5. AIRLINES INCREASE PRICES, AND REVENUES INCREASE Your mother asked you about an article she just read that said airline revenues were rising despite the recession and rising fuel costs.  She knows you are studying economics and asks you to explain how this happened. You sketch a diagram in which you assume that the initial average ticket price is $300 and the number of airline seats is 70,000.  You recognize that the recession and rising fuel costs are supply/demand shifters and you sketch these in your diagram.  You assume that new ticket price is $600 and the new number of seats is 40,000 and then you show your Mom how your diagram explains why airline revenues are increasing.  

Include the following:

Show the changes in supply and demand in the diagram

Label the new supply and demand curves in the diagram

Identify the rectangles for the new revenue in initial and new equilibrium in the diagram

Explain why you showed the shift(s) in supply and demand

Calculate the initial and new revenue for the airline

Initial Diagram:

Airline Tickets 10000 20000 30000 40000 50000 60000 70000 80000 0 100 200 300 400 500 600 700 800

Seats in Thousands

Author: Rice University; Source: Principle of Economics by OpenStax College; License: Createive Commons License 4.0