Econ 1 TA session Week 2 Chapter 4 Question 6 sweatshirts Solution Using supply and demand diagrams show the effect of the following events on the market for a A hurricane in South Carolina damages the cotton crop When a hurricane in South Carolina damages the cotton crop it raises input prices for producing sweatshirts As a result the supply of sweatshirts shifts to the left The new equilibrium price is higher and the new equilibrium quantity of sweatshirts is lower Figure 1 b The price of leather jackets falls Solution decline A decline in the price of leather jackets leads more people to by leather jackets reducing the demand for sweatshirts Both the equilibrium price and quantity of sweatshirts will 1 Econ 1 TA session Week 2 Figure 2 c All colleges require morning exercise in appropriate attire Solution The effects of colleges requiring students to engage in morning exercise in appropriate attire raises the demand for sweatshirts The result is an increase in both the equilibrium price and quantity of sweatshirts Figure 3 d New knitting machines are invented Solution The invention of new knitting machines increases the supply of sweatshirts The result is a reduction in the equilibrium price and an increase in the equilibrium quantity 2 Econ 1 TA session Week 2 Figure 4 3 Econ 1 TA session Question 8 The market for pizza has the following demand and supply schedules Price Quantity Demanded Quantity Supplied 135 pizzas 26 pizzas Week 2 4 5 6 7 8 9 53 81 98 110 121 104 81 68 53 39 Figure 5 a Graph the demand and supply curves What are the equilibrium price and quantity in this market Solution Quantity supplied equals quantity demanded at a price of 6 and quantity of 81 pizzas b If the actual price in this market were above the equilibrium price what would drive the market toward the equilibrium Solution If the price were greater than 6 quantity supplied would exceed quantity demanded so suppliers would reduce the price to gain sales 4 Econ 1 TA session Week 2 c If the actual price in this market were below the equilibrium price what would drive the market toward the equilibrium Solution If the price were less than 6 quantity demanded would exceed quantity supplied so suppliers could raise the price without losing sales In both cases the price would continue to adjust until it reached 6 the only price at which there is neither a surplus nor a shortage 5 Econ 1 TA session Question 11 Week 2 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 Quantity Supplied 10 000 tickets 8 000 tickets 4 8 12 16 20 8 000 6 000 4 000 2 000 8 000 8 000 8 000 8 000 1 Draw the demand and supply curves What is unusual about this supply curve Why might this be true Solution As Figure 6 shows the supply curve is vertical The constant quantity supplied makes sense because the basketball arena has a fixed number of seats at any price Figure 6 2 What are the equilibrium price and quantity of tickets Solution Quantity demanded equals Quantity supplied at a price of 8 And the equilibrium quan tity is 8000 tickets 6 Econ 1 TA session Week 2 3 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 4 000 tickets 4 8 12 16 20 3 000 2 000 1 000 0 8 000 8 000 8 000 8 000 4 8 12 16 20 11 000 8 000 5 000 2 000 7 Now add the old demand schedule and the demand schedule for the new students to calculate the new demand schedule for the entire college What will be the new equilibrium price and quantity Solution Price Quantity Demanded Quantity Supplied 14 000 tickets 8 000 tickets The new equilibrium price will be 12 which equates quantity demanded to quantity supplied The equilibrium quantity remains 8 000 tickets