Aden Tabers-Assignment No 2 Supply&Demand Problems-1-1

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Coastal Alabama Community College - Bay Minette *

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Economics

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Feb 20, 2024

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ECO 231 Principles of Macroeconomics Coastal Alabama Community College Supply and Demand Problems Assignment No.. 2 1. Why are shortages or surpluses more likely with preset prices, such as those on tickets, than flexible prices, such as those on gasoline? They are more likely because preset prices try to predict the level of demand that will produce an equilibrium quantity instead of responding to demand conditions. If the predictions are not correct, there will be an imbalance between the quantity supplied and the quantity demanded. 2. Suppose the supply of apples sharply increases because of perfect weather conditions throughout the growing season. Assuming no change in demand, explain the effect on the equilibrium price and quantity of apples. Explain why quantity demanded increases even though demand does not change. In this case, the equilibrium price will drop, and the equilibrium will increase. This is because the supply curve will shift to the right, which indicates that there will be more apples available across the price range. 3. Will the equilibrium price of orange juice increase or decrease in each of the following situations? A. A medical study reporting that orange juice reduces cancer is released at the same time that a freak storm destroys half of the orange crop in Florida. The equilibrium price will rise. B. The prices of all beverages except orange juice fall in half while unexpectedly perfect weather in Florida results in an orange crop that is 20 percent larger than normal. The equilibrium price will decrease. 4. Advances in research and development in the pharmaceutical industry have enabled manufacturers to identify potential cures more quickly and therefore at lower cost. At the same time, the aging of our society has increased the demand for new drugs. Construct a supply and demand diagram of the market for pharmaceutical drugs. Illustrate the impacts of these developments, and evaluate the effects on market price and the equilibrium quantity. Since the drugs are now produced at a lower cost, the supply increases in the market and the demand for the drugs increases as well. This will cause the equilibrium quantity to rise regardless of the proportional changes. The market price will depend on the proportion of these increases. 5. Ketchup is a compliment (as well as condiment) for hot dogs. If the price of hot dogs rises, what will happen to the demand for ketchup? For tomatoes? For tomato juice? For orange juice? The demand for all of these will decrease. 6. Explain following statement using supply-and-demand diagrams: “When a cold snap hits Florida, the price of orange juice rises in supermarkets throughout the country.” This is because

the crops will die and the supply of oranges is reduced, and consequently the quantity of orange juice drops so the price rises as the quantity decreases. 7. Explain following statement using supply-and-demand diagrams: “When weather turns warm in New England every summer, the price of hotel rooms in the Caribbean resorts plummets.” As the weather warms up, demand for hotel rooms decreases. This means that the demand curve shifts to the left and the prices drop. 8. Explain following statement using supply-and-demand diagrams: “When war breaks out in the Middle East, the price of gasoline rises, and the price of used Cadillac falls.” This is because a war would cause oil supplies to drop, making gas more expensive to produce, thus making the gas prices higher. People tend to use public transportation when gas prices are higher making the demand for the Cadillac to drop and the price with it. 9. Consider the market for coffee beans. Suppose that the prices of all other caffeinated beverages go up 30 percent while at the same time a new fertilizer boosts production at coffee plantations dramatically. Can you tell what will happen to the equilibrium price? What about the equilibrium quantity? A. Both the equilibrium price and the quantity will rise. B. The equilibrium price will rise but the equilibrium quantity will fall. C. The equilibrium price may rise or fall but the equilibrium quantity will rise for certain. D. Neither the price change nor the quantity change can be determined for certain. E. None of the above. 10. Suppose that the price of basketball tickets at your college is determined by market forces. Currently, the demand and supply schedules are as follows: Price Quantity Demanded (Q d ) Quantity Supplied (Q s ) $4 10,000 tickets 8,000 tickets $8 8,000 8,000 $12 6,000 8,000 $16 4,000 8,000 $20 2,000 8,000 A. Draw the demand and supply curves. What is unusual about this supply curve? Why might this be true? B. What are the equilibrium price and quantity of tickets? C. Your college plans to increase total enrollment next year by 5,000 students. The additional students will have the following demand schedule: Price Quantity Demanded $4 4,000 tickets $8 3,000

$12 2,000 $16 1,000 $20 0 11. Market research has revealed the following information about the market for chocolate bars: The demand schedule can be represented by the equation Q D = 1,600 – 300P, where Q D is the quantity demanded and P is the Price. The supply schedule can be represented by the equation Q S = 1,400 + 700P, Q S is the quantity supplied and P is the Price. Calculate the equilibrium price and quantity in the market for chocolate bars. The equilibrium price is 0.2 and the equilibrium quantity is 1,540 in the market for chocolate bars. 12. Assume that demand for a commodity is represented by the equation P = 10 - .2 Q D and supply by the equation P = 2 + .2 Q S , where Q D and Q S are quantity demanded and quantity supplied, respectively, and P is price. Using the equilibrium condition Q S = Q D , solve the equations to determine equilibrium price. Now determine equilibrium quantity. The equilibrium price is 6 and the equilibrium quantity is 20.

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