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Exam 3: Part A: Demand, Supply, and Market Equilibrium

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Question 1

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Differentiate between a normal (superior) and an inferior good.

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A normal (superior) good is one whose de...

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Question 2

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Describe and give a reason for the law of supply.

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The law of supply indicates that, other ...

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Question 3

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List five basic determinants of market demand that could cause demand to decrease.

Suppose a producer sells 1,000 units of a product at $5 per unit one year, 2,000 units at $8 the next year, and 3,000 units at $10 the third year.Is this evidence that the law of demand is violated? Explain.

Suppose that a decrease in the price of feed grain leads to a dramatic decrease in the price of beef.Use the income effect and the substitution effect to explain why there was an increase in the quantity of beef purchased.

Use the data in the following table to explain the economic effects of a price floor at $8, at $9, and at $10.Explain the economic effects.

State the law of demand and explain why the other-things-equal assumption is critical to it.

Use the data in the following table to explain the economic effects of a price ceiling at $6, at $5, and at $4.

What are the consequences for equilibrium price and quantity if the supply of pink salmon has increased and the demand for pink salmon has decreased? Assume that supply has increased more than demand has decreased

Describe in words how one can recognize the market equilibrium point in a graph of a demand schedule and a supply schedule.

What are the consequences for equilibrium price and quantity if the supply of gasoline has decreased and the demand for gasoline has increased? Assume that the increase in demand outweighs the decrease in supply.

"Government-set prices undermine the rationing function of competitive prices." Explain carefully in terms of both price ceilings and price floors.

Given the products below and the events that affect them, indicate what happens to demand or supply, and the equilibrium price and quantity.Identify the determinant of demand or supply that causes the shift.(a) Blue jeans.The wearing of blue jeans becomes less fashionable among consumers.(b) Computers.Parts for making computers fall in price because of improvements in technology.(c) Lettuce.El Nino produces heavy rains that destroy a significant portion of the lettuce crop.(d) Chicken.Beef prices rise because severe winter weather reduces cattle herds.

Assuming no government intervention, describe the market behaviour that should result if the price of a product is below its equilibrium price; then describe the behaviour that should occur if the price is above its equilibrium price.

What effect will each of the following have upon the supply of television sets? Explain your reasoning in each case.(a) an increase in the price of electronic equipment used in producing television sets (b) a decline in the number of firms producing television sets (c) a large new tariff on imported Japanese TV sets (d) new inexpensive satellite dishes which make televisions more popular among consumers

What is a price ceiling and what are its economic effects?

Evaluate.An increase in demand causes price to rise which, in turn, causes demand to fall.Therefore, an increase in demand will not have lasting effects.

What is the difference between a change in demand and a change in quantity demanded?

What are the consequences for equilibrium price and quantity if there is an equal increase in the supply and demand for sushi?

(a) Determine the equilibrium price and quantity if demand is represented by the equation, P = 40 - .2QD and supply by the equation P = 10 + .4QS.(b) Suppose demand changes and is now represented by the equation P = 52 - .2QD.Has demand increased or decreased? What is the new equilibrium price and quantity? (c) Suppose instead supply changes and is now represented by the equation P = 16 + .4QS.Has supply increased or decreased? What is the new equilibrium price and quantity?