Assignment
Supply & Demand? ?
1. Consider the market for brownies in an economy with two people, Zoe and Joe. Individual demand schedules for Zoe and Joe are provided below. Draw the market demand curve ?for this economy. Label the axes and clearly include the 3 points on the curve.
2. Suppose there are two brownie companies in this economy- Gorilla Deli and Bangor Brownies- with individual supply schedules as presented below. On the same graph above, draw the market supply curve?.
3. a. The Law of Demand states that:
b. The Law of Supply states that:
c. What is the equilibrium price and quantity?
4. a. Suppose the price is $1. What will be the quantity supplied and what will be the quantity demanded?
b. Since quantity supplied is (less than, greater than) quantity demanded, there is a (shortage, surplus).
c. Suppose the price is $3. What will be the quantity supplied and what will be the quantity demanded?
d. Since quantity supplied is (less than, greater than) quantity demanded, there is a (shortage, surplus).
Remember: When Quantity Supplied exceeds Quantity Demanded, there is a surplus. When there's a surplus, producers in pursuit of their own self-interest will lower their prices in order to sell their goods. In the future, they'll produce less, because at the lower price it's not worth it to produce that same amount of goods. Thus, prices will lower until quantity supplied equals quantity demanded.
5. Below, there are 5 supply and demand problems- complete three of them, including the letter (i.e. A,B,C...) next to the graph. For each problem, there are two events happening simultaneously (event a and event b). Add the two correct shifts to these graphs that would result from the two events below. After drawing the correct shifts, indicate whether or not the equilibrium price and equilibrium quantity should increase or decrease by circling the answer below. ?Be sure to label the axes. ?Remember: an effect dominating means it's much larger
compared to the other event.
A. Suppose the market is the market for thrift clothes, an inferior good. Two events occur:
a. A recession, lowering people's incomes. This effect dominates.
b. A new law requires all thrift clothes to be cleaned thoroughly before being sold.
This is an increase in the input costs for thrift stores.
B. Suppose we are looking at the market for illegal handguns in Indiana.
a. Police departments across Illinois crack down on illegal handgun sales in Illinoiscausing prices for illegal handguns from Illinois, a substitute good, to sky rocket.
b. Indiana decides it has too many people in their prisons- and they stop giving people jail time for selling illegal guns. As a result, the number of people selling their guns illegally increases. This effect dominates.
C. Suppose we are looking at the market for denim overalls.
a. Hip hop artists like Chance the Rapper make people decide that overalls are fashionable.This effect dominates.
b. Denim pants are temporarily less popular, leading to a lower price. When companies are making decisions between producing denim pants or denim overalls, the price of denim pants is currently lower. (Denim pants and denim overalls are substitutes in production here).
D. Suppose we are looking at the market for tea.
a. Vietnamese entry into the coffee market causes the price of coffee, a substitute good, to drop. This effect dominates.
b. New machinery makes tea production cheaper (i.e. technology improves).
E. Suppose we are looking at the market for suburban houses.
a. Suburban homeowners expect that the price of houses will be much lower in the future. This effect dominates.
b. Pop culture gets people excited about city life- decreasing the number of consumers of suburban houses.