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UNC-Chapel Hill ECON 101 - Demand and Supply Examples

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1Econ 101 M. SalemiDemand and Supply Examples ReviewPrice Floors and Ceilings keep market price from allocating scarce goods.Using demand and supply to predict changes in prices and quantities.Shifts in the demand scheduleShifts in the supply scheduleWhat have we learned? Econ 101 M. SalemiEcon 101 M. SalemiPrice is a Rationing MechanismA Demand Schedule shows the quantity of a well-defined good that buyers are willing and able to purchase at each possible price.A Supply Schedule shows the quantity of a well-defined good that sellers are willing and able to sell at each possible price.The Equilibrium Price:Is the price such that quantity demanded equals quantity supplied. Separates prospective buyers into two groups: those who get the good and those who do not.Econ 101 M. SalemiEcon 101 Demand for UCSC T Shirt$0.00$4.00$8.00$12.00$16.00$20.00$24.00$28.00$32.000 25 50 75 100 125 150 175 200 225 250 275 300 325TShirtsPrice2Econ 101 M. SalemiReview Supply ScheduleSupply Schedule for Pizza$0.00$0.50$1.00$1.50$2.00$2.50$3.00$3.50$4.00$4.50$5.00$5.500 200 400 600 800 1000 1200 1400 1600Slices of Pepperoni PizzaDollars per SliceStore AStore BStore GIndividual Stores Supply Pizza Only When Their Reservation Price is MetEcon 101 M. SalemiMarket Equilibrium occurs at the price where quantity demanded equals quantity supplied.Demand and Supply of Pizza$0.00$0.50$1.00$1.50$2.00$2.50$3.00$3.50$4.00$4.500 200 400 600 800 1000 1200 1400 1600Slices of Pepperoni PizzaDollars per SliceDemandSupply EquilibriumEcon 101 M. SalemiIn equilibrium, the number of slices that will be denied to consumers even though consumers have a positive reservation price for those slices is …A. 0B. 600C. 1000D. 1600Demand and Supply of Pizza$0.00$0.50$1.00$1.50$2.00$2.50$3.00$3.50$4.00$4.500 200 400 600 800 1000 1200 1400 1600Slices of Pepperoni PizzaDollars per SliceDemandSupply EquilibriumEcon 101 M. SalemiUse Your Clickers To Answer The Following Graded Question3Econ 101 M. SalemiGiven the displayed demand and supply data, equilibrium price and quantity are:A. $3.00, 200B. $1.50, 200C. $2.25, 125D. $2.25, 75E. None of the AboveEcon 101 M. SalemiPrice Floors and Ceilings keep market price from allocating scarce goods.A Price Ceiling is a legal requirement that the price of a particular good not rise above the ceiling level.A Price Floor is a legal requirement that the price of a particular good not fall below the floor level.Price ceilings and floors only matter when they are binding on the market.Econ 101 M. SalemiPrice CeilingThe Pizza Market with a Price Ceiling$0.00$0.50$1.00$1.50$2.00$2.50$3.00$3.50$4.00$4.50$5.000 200 400 600 800 1000 1200 1400 1600Slices of PizzaDollars per SliceDemandSupplyPrice CeilingEcon 101 M. SalemiPrice CeilingThe equilibrium price is $2.50, higher than the ceiling price of $2.00.Quantity Demanded is:800 slices at $2.00.400 slices at $2.50.Non-market mechanisms will decide who gets the available slices.4Econ 101 M. SalemiPrice FloorPizza Market with a Price Floor$0.00$0.50$1.00$1.50$2.00$2.50$3.00$3.50$4.00$4.500 200 400 600 800 1000 1200 1400 1600Slices of PizzaDollars per SliceDemandSupplyPrice FloorEcon 101 M. SalemiPrice FloorThe equilibrium price is $2.50, lower than the floor price of $3.50.At the floor price of $3.50: Quantity demanded is 200 slices.Quantity supplied is 1000 slices.There is excess supply. Firms have an incentive to find a way around the floor.Econ 101 M. SalemiUse Your Clickers To Answer The Following Graded QuestionEcon 101 M. SalemiWhich of the following correctly describes the effects of binding price floors and ceilings on markets?A. A price floor causes quantity demanded to exceed quantity supplied.B. A price ceiling leads buyers to compensate sellers in alternative ways.C. A price ceiling causes quantity supplied to exceed quantity demanded.D. A price floor leads buyers to compensate sellers in alternative ways.5Econ 101 M. SalemiShifts in the demand scheduleThe demand schedule gives the relationship between quantity demanded and price withother demand factors unchanged.When other demand factors change, the demand schedule shifts.Econ 101 M. SalemiFactors that Increase DemandA decrease in the price of complements.An increase in the price of substitutes.An increase in income (for normal goods).An increase in preference for the good.An increase in population of potential buyers.An increase in expected future price of the good.Econ 101 M. SalemiUse Your Clickers To Answer The Following Non-Graded QuestionEcon 101 M. SalemiA sale on Subway sandwiches will cause a (an)____ in the equilibrium price and a (an) _____ in the equilibrium quantity of pizza.A. Increase, increaseB. Increase, decreaseC. Decrease, increaseD. Decrease, decrease6Econ 101 M. SalemiSuppose Subway lowers the price of its sandwiches.The Effect on the Pizza Market of a Decrease In Demand$0.00$0.50$1.00$1.50$2.00$2.50$3.00$3.50$4.00$4.500 200 400 600 800 1000 1200 1400 1600Slices of PizzaDollars per SliceOriginal DemandLower DemandSupplyEcon 101 M. SalemiThe effect on the pizza market of a decrease in the price of a substituteWhy does demand for pizza fall?Subways sandwiches are a substitute for pizza. Some consumers switch from pizza to subs.By how much does the demand for pizza fall?By 300 slices per day—the horizontal difference between the old and new demand schedules.Econ 101 M. SalemiThe effect on the pizza market of a decrease in the price of a substituteWhat is the effect on equilibrium price?The equilibrium price falls from $2.50 to $2.25 per slice.What is the effect on equilibrium quantity?The equilibrium quantity falls from 600 slices per day to 400 slices per day as one store drops out.Econ 101 M. SalemiThe effect on the pizza market of a decrease in the price of a substituteIf demand fell by 300 slices per day, why did the equilibrium quantity fall by only 200 slices?The decrease in equilibrium price offset some of the shift in demand.7Econ 101 M. SalemiShifts in the Supply scheduleThe supply schedule gives the relationship between quantity supplied and price with other supply factors unchanged.When other supply factors change, the supply schedule shifts.Econ 101 M. SalemiFactors that Increase SupplyA decrease in the cost of materials, labor, or other inputs used to produce the good in question. An improvement in technology that reduces the cost of producing the good. An improvement in the weather (especially for agricultural products).An increase in the number of suppliers. A


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