Supply And Demand

Homework 2: Supply & Demand ECON 101 – Macroeconomics Professor Schenk Due: September 8, 2009 August 30, 2009 1. Consider the following supply and demand schedule:

Price 10 20 30 40

Quantity Demanded 100 75 50 25

Quantity Supplied 20 50 80 110

(a) Draw the supply and demand curves with the 𝑦-axis labelled “price” and 𝑥-axis labelled “quantity.” (b) What is the approximate equilibrium price? (c) Approximately how many unites will be sold at the equibilibrium price? 2. Assume the demand curve from Question 1 shifts. On the same graph from the previous question, plot the following points:

Price 10 20 30 40

Quantity Demanded 75 50 25 0

(a) Did the demand curve shift to the left or the right? (b) What was the change in quantity supplied? What was the change in supply? (c) Did price increase or decrease? 3. At an Iowa State football game 40,000 tickets were sold at $30 apiece. The game was sold out and 3,500 people did not receive tickets, although they were willing to pay the entrance fee. (a) Were the ticket prices at equilibrium, below equilibrium, or above equilibrium? How do you know?

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4. In 1990 the United Nations (UN) placed trade sanctions on Iraqi oil. In 1996, Iraq was allowed limited exports of oil as a part of war reparations. What was the predicted effect on the equilibrium price and quantity of oil? (a) Price fell initially, then rose; quantity fell and then rose. (b) Price fell initially, then rose; quantity rose and then fell. (c) Price rose initially, then fell; quantity fell and then rose. (d) Price fell initially, then rose; quantity rose and then fell. 5. When the UN allowed Iraq to export some oil, was there a change in demand or quantity demanded? Was there a change in supply or quantity supplied? 6. To keep the price of gas from rising quickly after Katrina, the government instituted price ceilings on the price of gasoline in some states. These ceilings caused in the gasoline market? (a) surpluses (b) a movement of the demand curve (c) a movement along the demand curve (d) shortages 7. Presume the market demand curve can be written: 𝑄𝑑 = 10 −

𝑝 2

(1)

where 𝑄𝑑 is the amount demanded at price 𝑝. Also, let the supply curve be: 𝑄𝑠 − 5 + 2𝑝 where 𝑄𝑠 is the amount suppplied at price 𝑝. (a) Draw the demand curve for prices between $0 and $10. (b) Draw the supply curve for prices between $ and $10. (c) What is the price where there will be no left over goods in the market? (d) How many goods will be sold at that price? You’re Done!

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(2)