ECON 500 – Spring 2007 Chapter 3 – “Supply and Demand: An Introduction” Questions from the textbook: Review questions 1, 2, and 4 (page 87). Problems 1, 2, 3, 4, 5, 7, 8, 9, 12, 13, 14, and 15 (pages 87-88). Additional problems: 1) Consider a market with Supply and Demand as illustrated below: i. Does the “Law of Demand” appear to be satisfied? Explain. ii. Does the “Law of Supply” appear to be satisfied? Explain. iii. Is there “excess demand,” “excess supply,” or neither at a price of 45.10=p ? Explain. iv. Based upon the figure above, can you determine if a price floor of 50.8=fp would have an affect on this market? Explain. v. Based upon the figure above, can you determine if a price ceiling of 50.8=cp would have an affect on this market? Explain. vi. Based upon the figure above, can you determine if a price floor of 00.12=fp would have an affect on this market? Explain. vii. Based upon the figure above, can you determine if a price ceiling of 00.12=cp would have an affect on this market? Explain. $ Q Supply Demand 10.45 2,500 4,8502) Consider a market in which demand is given by the function ppD 2100)( −= and supply is given by the function ppS 3)( = . i. Graphically illustrate the demand curve in this market. ii. Graphically illustrate the supply curve in this market. iii. Determine if there is excess demand, excess supply, or neither at each of the following price: p=10, p=20, p=25. 3) Consider a market in which demand is given by the function ppD800)(= and supply is given by the function ppS 200)(=. i. Graphically illustrate the demand curve in this market. ii. Graphically illustrate the supply curve in this market. iii. If demand changes to ppD800,1)( = , does this correspond to an increase in demand or a decrease in demand? Explain. iv. Determine the equilibrium price and quantity when demand is given by ppD800)(=. Determine the equilibrium price and quantity when demand is given by ppD800,1)( = . v. Are your answers to parts (iii) and (iv) consistent with each other? Clearly explain why or why not. 4) Consider the market for avocados in California. Clearly explain how equilibrium price and equilibrium quantity will change if there is: i. a decrease in demand (with no change in supply). ii. an increase in supply (with no change in demand). iii. a simultaneous increase in demand and decrease in supply. iv. a simultaneous decrease in both demand and supply. 5) Consider the market for pizza in Northridge. Between 2005 and 2007 equilibrium price and quantity both increased in this market. Explain whether or not this observed change could possibly be a result of i. an increase in demand (with no change in supply). ii. an increase in supply (with no change in demand). iii. a simultaneous increase in both demand and supply. iv. a simultaneous decrease in demand and increase in
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