Download Quiz 1: Solutions

Amherst College
Department of Economics
Economics 111 Section 5
Fall 2015
Name: _________________________
P.O. Box _______________
Quiz 1: Solutions
Year
1971
1972
1973
1974
1975
1976
1.
Calculators
Price
Quantity
($/calculator)
(millions)
320
1
200
5
100
12
50
20
40
23
35
24
Production Cost Data
Semiconductor Display
Assembly
chip ($/chip)
($/digit)
time (min)
15.00
1.00
30
3.00
.30
5
Review questions:
a. As a consequence of market forces, how would you expect the quantity demanded and quantity
supplied in each year to be related? Explain.
Quantity demanded equals quantity supplied
When there’s a shortage market forces cause the price to rise; alternative there’s a surplus
market forces cause the price to fall. Therefore, as a consequence of market forces the quantity
demanded will equal the quantity supplied.
b.
Consider the graph below that plots the quantity and price for each year. As a consequence of market
forces, what does each year’s point in the graph represent? The equilibrium.
c.
For each year, where do the demand curve and supply curve intersect? At the equilibrium. Explain.
In each year, there was neither a shortage nor a surplus. Hence, the market was in equilibrium
in each year. The demand and supply curves for each year intersect at the point representing
that year.
2
2.
Focus on the market demand curve
a, Is the demand curve downward sloping or upward sloping? Downward ____
X Upward ____. Explain.
The demand curve is downward sloping; when a good becomes more expensive, consumers
purchase less.
b.
Based on the points plotted, did the demand curve have to shift from 1971 to 1976 or could the demand
curve have remained stationary during these years? Explain.
Had to shift ____
Could have remained stationary ____
X Explain.
The demand curve did not have to shift. We can draw a single downward sloping curve through
all six points.
c.
Do the data appearing above include any information suggesting that the demand curve shifted?
Yes ____
No ____
X . Explain.
Since the demand curve shifts only when something relevant to the demand for the good other
than the price changes. Based on our information there is no reason to believe that such a change
occurred.
d.
Draw a demand curve consistent with your answers in the graph below:
P ($/calculator)
1971
300
D1971-1976
1972
200
1973
100
1974
5
10
15
(millions of calculators)
20
1975
1976
25
Q
3
3.
Focus on the market supply curve
a, Is the supply curve downward sloping or upward sloping? Downward ___ Upward ____
X . Explain.
The supply curve is an upward sloping curve: when a good becomes more expensive, it becomes
a more profitable item for firms to produce – firms respond by producing more.
b.
Based on the points plotted, did the supply curve have to shift from 1971 to 1976 or could the demand
curve have remained stationary during these years?
Had to shift ____
X
Could have remained stationary ____ Explain.
There is no way to draw an upward sloping supply curve through the points.
c.
Do the data appearing above include any information suggesting that the supply curve shifted?
Yes ____
X
No ____. Explain.
Yes. The supply curve can shift only when something relevant to supply other than the price of
pocket calculators themselves change. This in fact occurred. The data suggest that it became
cheaper to produce calculators. Consequently, the supply curve shifted rightward.
d.
Draw a supply curve consistent with your answers in the graph below:
P ($/calculator)
S1971
S1972
1971
300
S1973
1972
200
S1974
S1975
1973
100
S1976
1974
5
4.
10
15
(millions of calculators)
1975
1976
20
Q
25
On the graph below, superimpose the market demand and supply curves.
P ($/calculator)
S1972
S1971
1971
300
D1971-76
S1973
1972
200
S1974
S1975
1973
100
1974
5
10
15
(millions of calculators)
20
S1976
1975
1976
25
Q