Assignment Problem:
Problem 1) Answer the following questions related to the market demand curve and the market supply curve for Honda Odyssey minivans.
i: State the Law of Demand and list the determinants of market demand.
ii:. State the Law of Supply and list the determinants of market supply.
iii: Illustrate graphically what you would expect to happen to the demand curve if tax breaks raised consumers' incomes and new tariffs on steel raised the price of steel (steel is required to produce the minivans). How would you expect equilibrium price and quantity to change? Explain
Problem 2) The tables below show the demand curves for the three consumers in a market (D1, D2, and D3) and the supply curves for the three producers in the market (S1, S2, and S3). First, solve for the market demand curve and the market supply curve by finding the market demand and supply at the prices of $10, $15, $20, and $25. Then find the equilibrium price and quantity in the market.
|
Price
|
D1
|
D2
|
D3
|
|
$10
|
30
|
8
|
27
|
|
15
|
20
|
4
|
9
|
|
20
|
10
|
2
|
3
|
|
25
|
0
|
1
|
1
|
|
Price Si
|
S2
|
S3
|
|
$101
|
2
|
1
|
|
152
|
$4
|
$3
|
|
203
|
6
|
6
|
|
254
|
8
|
9
|
Problem 3) Given the products below and the events that affect them, indicate what happens to demand, supply, equilibrium quantity, and equilibrium price in a competitive market. Identify the determinant of demand and supply that causes the shifts and illustrate the changes graphically.
i: Gasoline. People drive their cars less because they increasingly use public transportation and telecommute to work; the cost of a barrel of oil rises because of attacks on Saudi oil fields.
ii: Organic foods. People become more concerned about chemical additives in food; traditional farms are switching to more organic methods and getting certified as organic.
iii: Film cameras. The price of digital cameras falls for consumers; there is a decline in the number of stores selling film cameras.
iv: Bread. Many consumers adopt a low carbohydrate diet and avoid bread products; the price of flour falls for bread producers.
Problem 4) The hottest, new boy band, 2Hot2Handle, has just begun their U.S. tour. The supply and demand schedules for the local 2Hot2Handle show is below, with the arena capacity fixed at 2,000 seats.
|
Quantity
|
|
Quantity
|
|
demanded (tickets)
|
Price
|
supplied (tickets)
|
|
1000
|
$60.00
|
2000
|
|
2000
|
50
|
2000
|
|
3000
|
40
|
2000
|
|
4000
|
30
|
2000
|
|
5000
|
20
|
2000
|
|
6000
|
10
|
2000
|
Answer the following questions.
(i) Riding on their enormous popularity, 2Hot2Handle decides to set the price of tickets of all tickets at $60. Is the market for tickets at equilibrium? If not, calculate the size of the shortage/surplus.
(ii) Hoping to gain publicity by creating long lines for tickets, 2Hot2Handle decides to lower ticket prices to $30. Is the market for tickets at equilibrium? If not, calculate the size of the shortage/surplus.
(iii) Will a price of $30 be an efficient outcome? If the price of $30 does not change, how might an efficient outcome be reached?
Problem 5) In the spaces below each of the following, indicate the [increase (+), decrease (-), or abmiguous (?)] impact on equilibrium price (P) and equilibrium quantity (Q) for each of these changes in demand and/or supply. Illustrate the changes graphically, as it may help to graph the changes to help see the correct conclusions.
P Q
i: Increase in demand, increase in supply
ii: Increase in demand, decrease in supply
iii: Decrease in demand, decrease in supply
iv: Decrease in demand, increase in supply