...Chapter 2 The Basics of Supply and Demand Questions for Review 1. Suppose that unusually hot weather causes the demand curve for ice cream to shift to the right. Why will the price of ice cream rise to a new market-clearing level? Suppose the supply of ice cream is completely inelastic in the short run, so the supply curve is vertical as shown below. The initial equilibrium is at price P1. The unusually hot weather causes the demand curve for ice cream to shift from D1 to D2, creating short-run excess demand (i.e., a temporary shortage) at the current price. Consumers will bid against each other for the ice cream, putting upward pressure on the price, and ice cream sellers will react by raising price. The price of ice cream will rise until the quantity demanded and the quantity supplied are equal, which occurs at price P2. Copyright © 2013 Pearson Education. Inc. Publishing as Prentice Hall. Chapter 2 The Basics of Supply and Demand 2. Use supply and demand curves to illustrate how each of the following events would affect the price of butter and the quantity of butter bought and sold: a. An increase in the price of margarine. Butter and margarine are substitute goods for most people. Therefore, an increase in the price of margarine will cause people to increase their consumption of butter, thereby shifting the demand curve for butter out from D1 to D2 in Figure 2.2.a. This shift in demand causes the equilibrium price of butter to rise from...
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...CH2 1. Suppose the demand curve for a product is given by Q = 300 – 2P + 4I, where I is average income measured in thousands of dollars. The supply curve is Q = 3P – 50. a. If I = 25, find the market clearing price and quantity for the product. Given I = 25, the demand curve becomes Q = 300 ( 2P + 4(25), or Q = 400 ( 2P. Setting demand equal to supply we can solve for P and then Q: 400 ( 2P = 3P ( 50 P = 90 Q = 220. b. If I = 50, find the market clearing price and quantity for the product. Given I = 50, the demand curve becomes Q = 300 ( 2P + 4(50), or Q = 500 ( 2P. Setting demand equal to supply we can solve for P and then Q: 500 ( 2P = 3P ( 50 P = 110 Q = 280. c. Draw a graph to illustrate your answers. It is easier to draw the demand and supply curves if you first solve for the inverse demand and supply functions, i.e., solve the functions for P. Demand in part (a) is P = 200 ( 0.5Q and supply is P = 16.67 + 0.333Q. These are shown on the graph as Da and S. Equilibrium price and quantity are found at the intersection of these demand and supply curves. When the income level increases in part (b), the demand curve shifts up and to the right. Inverse demand is P = 250 ( 0.5Q and is labeled Db. The intersection of the new demand curve and original supply curve is the new equilibrium point. 2. Consider a competitive market for which the quantities demanded and supplied...
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...derivation of demand is a useful tool in this pursuit, often combined with a supply curve in order to determine equilibrium prices and understand the relationship between consumer needs and what is readily available in the market. The inherent relationship between the price of a good and the relative amount of that good consumers will demand is the fulcrum of recognizing demand curves in the broader context of consumer choice and purchasing behavior. Generally speaking, normal goods will demonstrate a higher demand as a result of lower prices and vice versa. Giffen goods are a situation where the income effect supersedes the substitution effect, creating an increase in demand despite a rise in price. Neutral goods, unlike Giffen goods, demonstrate complete ambivalence to price. That is to say that consumer swill pay any price to get a fixed quantity. The consumer equilibrium condition determines the quantity of each good the individual consumer will demand. The example illustrates, the individual consumer's demand for a particular good—call it good X—will satisfy the law of demand and can therefore be depicted by a downward‐sloping individual demand curve. The individual consumer, however, is only one of many participants in the market for good X. The market demand curve for good X includes the quantities of good X demanded by all participants in the market for good X. The market demand curve is found by taking the horizontal summation of all individual demand curves. For example...
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...dwindling number of cattle and growing export demand have tightened the supply and caused the average retail cost of fresh beef to climb. This article describes how the drought and extreme weather over the last year has caused such a decrease in cattle that consumers on all scales are feeling the impact in prices. Restaurants are forced to change the portion sizes and menu items to adapt to the rise in prices. It’s estimated that prices on beef have risen ten to twenty percent in the last year. The average retail cost of a pound of fresh beef in January 2014 was $5.04, in the next month it rose a significant 24 cents per pound. They are expecting demand and prices to increase in the summer. This year has been the highest in beef prices since 1987. I looked at the average of beef prices for the last five years; the average price for this time frame was $4.02. Beginning January 2014 we are already up a dollar a pound over the last five year average. The average beef consumption in the US is approximately sixty-seven pounds per year per person. There are a lot of things that affect the cost of beef, with these things raising the drought and weather is not the only things to blame. Cost of feed, gas to transport, exporting from other countries are all things that can affect the prices of meat. As the prices go up, the demand from the consumer goes down, as we have other food options. This causes a downward slope in the demand curve, moving the shift to things like poultry and produce...
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...ECO204-Principles of Microeconomics Ashford University Prof. Evelyn Bolden Supply and Demand Curves Do you agree or disagree with each of the following statements? Briefly explain your answers. 1. The price of a good rises, causing the demand for another good to fall. The goods are therefore substitutes. Substitute goods are those that can be used in place on one another -- Pepsi and Coke, for example. Substitutes are different goods that compete with the one under consideration. Therefore is the price of Pepsi goes up, it caused for Coke to increase its demand not fall. As a result, I disagree with the above statement. Increase in the price of a complement for X P Q 2. A shift in supply causes the price of a good to fall. The shift must have been an increase in supply. I agree with the above statement, because a change in supply affects the price and quantity of the product. a. An increase in supply (a shift rightward of the supply curve) causes the price to fall and the quantity to increase. b. A decrease in supply (a shift leftward in the supply curve) causes the price to rise and the quantity to decrease. 3. During 2007, incomes rose sharply for most Americans. This change would likely lead to an increase in the prices of both normal and inferior goods. When individuals have more income, they are normally more likely to purchase a good at...
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...Economics Report and Demand & Supply curve Of cigarettes in Australia Introduction: Recently, there has been a new trend in the tobacco industry in Australian society due to the increased prices of cigarettes, mainly for the reason that “with more than 3.1 million people still smoking today, tobacco still being the leading cause of death by a wide margin… “ (Scollo & Winstanley, p.xiii, 2008). Therefore, this report will illustrate the market structure of Australia tobacco industry, and then make analysis about the price chances on the demand and supplies for cigarettes. The third and the fourth part of the report are about the impacts of this change and some government policies for the tobacco industry, respectively. The market structure: Table 1: Tobacco companies operating in Australia: summary table for 2006-07 | BATA | PMA | ITA | Total revenue ($m) | 1476.7 | 623.3 | 386.5 | Net profit after tax ($m) | 410.7 | 172.6 | 2.7 | Shareholders’ funds ($m) | 632.6 | 403.4 | 25.1 | Total assets ($m) | 2962.1 | 627.5 | 176.7 | Number of employees | >110019 | 691 | 299* | Approximate market share in Australia (%) | 4619 | 34* | 1820 | * Figure for 2006 ** Figure assumed on the basis of market share reported by BATA and ITA, and assuming that a small percentage of the Australian market is accounted for by imported brands. Source: The BRW 1000, BAT website, BATA website, Imperial Tobacco Group Website. The tobacco industry in Australia has been considered...
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...Professor Scholz Economics 101, Problem Set #7 Costs, Adding Demand Curves and Perfect Competition Please complete work on sheet and SHOW your work! Problem 1 Posted: 10/20/2009 Due: 10/27/2009 The following chart represents the production function and cost curves for a firm. a) Please fill in the open squares given the information provided, and answer the related questions below. Assume that labor is paid a constant wage, i.e. our firm is a pricetaker in the labor market. Hint: use your definitions! MP L 0 --1 1 4 3 9 5 12 3 14 2 15 L 0 1 2 3 4 5 6 K 10 10 10 10 10 10 10 Q VC 0 4 8 12 16 20 1 24 FC 36 36 36 36 36 36 36 TC 36 40 44 48 52 AVC --4 AFC --36 2 9 ATC MC ----40 4 11 5.33 4.33 4 4 1.33 0.8 1.33 2 4 1.33 1.33 56 1.43 4 3 2.57 2.4 60 1.6 The following formulas can be used to calculate the necessary values for the chart. • • • • • • • MPL (Marginal Product of Labor) = (change in Q)/(change in L) In this case, labor is the only input that varies and we assume a constant wage. VC (Variable Cost) = L*wage FC (Fixed Cost) = TC – VC AVC (Average Variable Cost) = VC/Q AFC (Average Fixed Cost) = FC/Q ATC (Average Total Cost) = TC/Q or AFC + AVC MC (Marginal Cost) = (change in TC)/(change in Q) b) What is the relationship between ATC and MC, if ATC is decreasing as output increases? Specifically, can we tell if one is higher than the other? Why? When ATC is decreasing, MC is less than ATC. This is because the cost of producing each additional unit, represented...
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...evening students. The assessment of the potential joint venture we will determine if there is enough demand as revealed from student surveys, to legitimize the proposal to sell pizzas on each campus each evening in a mutually beneficial fashion. For the university it would allow for students and faculty to dine and work together for the first hour of each class, and for Domino’s the potential gains include larger profits and expanded business opportunity. To collect information, every evening of the week students and faculty were asked to complete a survey to help determine if there is enough demand and how cost points may affect that demand. The demand and forecast for pizza will determine if it is justified to move forward with the proposed joint venture. When completing a demand analysis it is important to test and review the proper demographic and independent variables. In the proposed University-Domino’s joint venture the surveys collected many data points. The demographic variables included students age, number of people in the household, and approximate household income. The independent variables included number of fast food restaurants passed, distance of commute, whether the student is coming to class straight from work, number of times fast food is eaten weekly, amount spent when eating fast food, and if a drink was purchased. The demand function, also known as the curve will specify the relationship between the various price points of pizza and quantity demanded....
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...ECON-112 Principles of Microeconomics Problem Set #8 (Practice Only)-SOLUTIONS Posted: Wednesday, December 4th, 2013 Due Date: None 1. Mankiw (6th edition), Chp17, Problem 6 (page 370) a. The payoffs are: Your Decision Work You get 15 units of happiness Work Classmate gets 15 units of happiness You get 5 units of happiness Shirk Classmate gets 30 units of happiness Shirk You get 30 units of happiness Classmate gets 5 units of happiness You get 10 units of happiness Classmate gets 10 units of happiness Classmate’ s Decision b. The likely outcome is that both of you will shirk. If your classmate works, you’re better off shirking, because you would rather have 30 units of happiness rather than 15. If your classmate shirks, you are better off shirking because you would rather have 10 units of happiness rather than 5. So your dominant strategy is to shirk. Your classmate faces the same payoffs, so he or she will also shirk. Best responses are in bold. c. If you are likely to work with the same person again, you have a greater incentive to work, so that your classmate will work, and you will both be better off. In repeated games, cooperation is more likely. d. The payoff matrix would become: Your Decision Work You get 15 units of happiness Work Classmate gets 65 units of happiness You get 5 units of happiness Shirk Classmate gets 50 units of happiness Shirk You get 30 units of happiness Classmate gets 25 units of happiness You get 10 units of happiness Classmate gets...
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...:Explain Individual Demand Schedule and Market Demand Schedule ? ANSWER : Demand schedule is the tabular statement of different quantities of a good bought of different prices of a particular moment of time. Demand schedule exhibits the relationship between the amounts of a commodity at different possible prices. Thus a demand schedule shows two columns namely amount demanded of a commodity and their corresponding prices. Demand schedule shows the functional relationship between price quantity combinations. A man never buys a commodity in different amounts at the same prices. He buys more at fewer prices and less at high price. This fact is revealed by demand schedule. A demand schedule is of two types : Individual demand schedule and market demand schedule :- Individual Demand Schedule:- An individual demand schedule shows deferent quantities of a commodity bought by an individual consumer at different possible prices. The reaction of an individual towards the commodities at their corresponding prices is reflected by an individual demand. Figure above showing Individual Demand Schedule and Curve. Market Demand Schedule:- A market demand schedule is the summation of innumerable individual demand schedules for a definite commodity. Each individual consumer has got his own quantity at a particular going price. Thus we can arrive at market demand schedule by combining different schedule of individuals in the market. An Example of a market demand schedule. ...
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...Exchange and Demand Individuals engage in four fundamental activities which reduce the burden of scarcity: exchange, production, specialization, and entrepreneurial activity. Markets and prices facilitate these activities and these activities form the basis of market activity which we study using supply and demand analysis. We will examine voluntary exchange along with a detailed development of the demand curve. We will also, see exactly how pure exchange reduces the burden of scarcity. I. Introduction We will see that the demand curve is the result of individuals making choices constrained by scarcity. Individuals are assumed to be rational, that is, to make choices which maximize their utility, where utility is defined as the want-satisfying ability of the goods consumed. A rational individual chooses from among the possible combinations of goods, that particular combination which maximizes her utility—that which makes her as well-off as possible. The possible combinations from which the individual can choose are limited because of scarcity. In a market economy the individual confronts scarcity in the form of prices, the fact that time is scarce and in the form of limited quantities of goods he or she owns which can be sold to buy other goods. Prices here are the prices of the goods the individual buys and sells, and they include not just prices of consumption goods but also wages, interest, rents, and profits. For most of us the primary good we sell is our labor services,...
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...the commodity which in simple terms referred as demand. For most of the commodities if prices soar high then people purchase less good hence reducing demand in the same way if supply increases prices go down increasing demand. This basic principle is the basis for the ‘law “of demand which can be described as quantity demand plummets as prices go upward, other variable factors constant. To understand the demand and price relation economists refer demand as schedule of quantities of commodity people want to buy at various prices, other factors constant (Colander, Rockerbie, & Richter, 2006, p.73). Whereas quantity demand is referred as demand of goods at certain price in the demand curve. Ursinus College in Pennsylvania in the year 2000 increased their tuition fee 17.6% to $23,460 in order to increase college revenue and funds to support financial aid which also in turn increased their admissions (Brickley, Smith, & Zimmerman, 2009, p.110). The conjecture of college president is increase in demand is against the law of the demand because of college going student’s snob mentality and their comparison of quality with respect to price. He speculated student’s presumption of costly colleges will have better quality education compared to cheap colleges so demand for their admissions increased. Soon after Ursinus College doing well with their strategy many other colleges increased their tuition fee according to the demand curve it fetched them more admissions as it did in Ursinus...
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...place your name, TA name and section number on top of the homework (legibly). Make sure you write your name as it appears on your ID so that you can receive the correct grade. Late homework will not be accepted so make plans ahead of time. Please show your work. Good luck! Please realize that you are essentially creating “your brand” when you submit this homework. Do you want your homework to convey that you are competent, careful, professional? Or, do you want to convey the image that you are careless, sloppy, and less than professional. For the rest of your life you will be creating your brand: please think about what you are saying about yourself when you do any work for someone else! 1. Consider a monopolist where the market demand curve for the produce is given by P = 520 – 2Q. This monopolist has marginal costs that can be expressed as MC = 100 + 2Q and total costs that can be expressed as TC = 100Q + Q2 + 50. a. Given the above information, what is this monopolist’s profit maximizing price and output if it charges a single price? Answer: MR = 520 – 4Q MC = 100 + 2Q 520 – 4Q = 100 + 2Q Q = 70 units of output P = 520 – 2Q = 520 – 2(70) = $380 per unit of output b. Given the above information, calculate this single price monopolist’s profit. Answer: Profit = TR – TC TR = P*Q = ($380 per unit)(70 units) = $26,600 TC = 100Q + Q2 + 50 = 100(70) + (70)(70) + 50 = $11,950 Profit = $14650 c. At the profit maximizing quantity, what is this monopolist’s...
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...In business decision making most useful tool is demand and supply. Demand and supply are very broad area in economics. It will talk about very thing in the business. If do not know about the demand and supply, then cannot make a decision on the business. In this easy will discus about the demand and supply and other tools of business decision making. A market is a set of arrangement by which buyers and seller exchange goods and services. Let us look about demand. Demand can be described as the relationship between quantity demanded for a particular good or service in specific circumstance. Also demand is define as the quantity of a good or service that consumers are willing and able to buy at a given price in a given time period. Each of us has an individual demand for particular goods and services and the level of demand at each market price reflects the value that consumers place on a product and their expected satisfaction gained from purchase and consumption. The following example gives a demand curve. Price | | | | | | | | 30 | | | | | | | | | | | | | | | | 20 | | | | | | | | | | | | | | | | 10 | | | | | | | | | | | | | | | | 0 | 2 | 4 | 6 | 8 | 10 | 12 | Quantity | The demand curve shows an estimate about the relationship between the price of any particular product or service and the quantity of that product that will be demanded by consumers. It is usually assumed to slope downward, in the general...
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...place your name, TA name and section number on top of the homework (legibly). Make sure you write your name as it appears on your ID so that you can receive the correct grade. Late homework will not be accepted so make plans ahead of time. Please show your work. Good luck! Please realize that you are essentially creating “your brand” when you submit this homework. Do you want your homework to convey that you are competent, careful, professional? Or, do you want to convey the image that you are careless, sloppy, and less than professional. For the rest of your life you will be creating your brand: please think about what you are saying about yourself when you do any work for someone else! 1. Consider a monopolist where the market demand curve for the produce is given by P = 520 – 2Q. This monopolist has marginal costs that can be expressed as MC = 100 + 2Q and total costs that can be expressed as TC = 100Q + Q2 + 50. a. Given the above information, what is this monopolist’s profit maximizing price and output if it charges a single price? Answer: MR = 520 – 4Q MC = 100 + 2Q 520 – 4Q = 100 + 2Q Q = 70 units of output P = 520 – 2Q = 520 – 2(70) = $380 per unit of output b. Given the above information, calculate this single price monopolist’s profit. Answer: Profit = TR – TC TR = P*Q = ($380 per unit)(70 units) = $26,600 TC = 100Q + Q2 + 50 = 100(70) + (70)(70) + 50 = $11,950 Profit = $14650 c. At the profit maximizing quantity, what is this monopolist’s...
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