Download Homework 2, Supply and Demand

Name
.
IVC
Irvine Valley College
Homework – Supply & Demand
Economics 2
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 faculty.ivc.edu/mmcneil 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 Also, there are 4 supply & demand videos.
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).
Economics 2
1. The Market: Peanut Butter
The Event:
Supply & Demand Exercises 213
Page 2
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
Show the changes on the diagram (or simply copy and paste the correct diagram from the gallery above).
2.
The Market:
Batteries
The Event:
The young generation is not materialistic! Children stop buying toys! They read books and play
cards instead. Duracell is forced out of the business.
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:
The Event:
Running Shoes
A new machine is developed that will help people exercise while sleeping.
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. Many people are buying electric cars instead of
gasoline powered cars. They charge them in their garages overnight.
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
Show the changes on the diagram (or simply copy and paste the correct diagram from the gallery above).
Eq. Q
Economics 2
5.
The Market:
Supply & Demand Exercises 213
Page 3
Silk Clothes
The Event:
A new silk spinning machine is developed in China that makes the job of producing silk fabric faster and
easier. Because of oil price increases, the price of all synthetic cloth (polyester, rayon, nylon, etc.) rises.
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).
6.
The Market: Apple Juice
The Event: New apple harvesting and peeling machines are developed that permit these jobs to be done faster
and easier. Also, "juice bars" become the popular place for people to "hang" instead of coffee houses.
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).
7.
The Market:
Eggs
The Event:
Genetic engineering produces the new "super chicken" that grows faster, eats less, and lays 4 or 5
eggs a day (compared to the normal 1 or 2). The government announces that the cholesterol in eggs is not harmful to
the circulatory system.
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).
8.
The Market:
Baby Formula
The Event:
To make sure that the babies of America are healthy, the Congress passes a law requiring that baby
formula be sold at half its current price of P1.
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
Show the changes on the diagram (or simply copy and paste the correct diagram from the gallery above).
Eq. Q
Economics 2
Supply & Demand Exercises 213
9. The Market: Elephant Tusks (Ivory)
Page 4
The Event:
The South African government confiscates and destroys the ivory it has seized from poachers.
(This amounts to about half the ivory that is taken illegally by elephant hunters.) Public information and
educational campaigns are initiated in an attempt to convince people that elephant horns are not an aphrodisiac.
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).
10. The Market: Dry Pinto Beans (Southern California Market)
The Event: Because of the enormous budget deficits and expenses for public employees’ retirements, the
economy of Southern California experiences a severe depression. The unemployment rate rises to 23%. The
government eliminates all subsidies on dried beans.
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).
11. I (the legislature) am planning to help orange producers; they’re having a terrible time, you know. I’m
going to impose a law that establishes a minimum legal price for oranges of $1.00 each. It will be
illegal to sell oranges for less than $1.00 each.
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. The fourth of the supply and demand videos will help you with this
question. (3 Points)