1. The following table shows information on the conditions of demand and supply for bicycles, where the quantities of bicycles are measured in thousands.
a. What is the quantity demanded and the quantity supplied at a price of $210?
b. At what price is the quantity supplied equal to 48,000?
c. Does the quantity demanded rise or fall as price increases? Briefly explain this pattern.
d. Does the quantity supplied rise or fall as price increases? Briefly explain this pattern.
Quantity Demanded Quantity Supplied
Price in thousands in thousands
$120 50 36
$150 40 40
$180 32 48
$210 28 56
$240 24 70
2. Using the data from problem (1), graph the demand and supply curve for bicycles. How can you determine the equilibrium price and quantity from the graph? How can you determine the equilibrium price and quantity from the table? What is the equilibrium point?
3. Consider the market for bicycles as discussed in problems (1) and (3). If the price was $120, would a situation of excess demand or excess supply exist? Identify this price level and the quantities demanded and supplied on a graph like the one you drew for problem (3). Describe the economic forces that will tend to move the price of $120 toward the equilibrium price.
4. Supply and demand for movie tickets in a city are shown in the table below. Graph demand and supply and identify the equilibrium. Then calculate in a table and graph the effect of the following two changes.
a. Three new nightclubs open. They offer decent bands and have no cover charge, but make their money by selling food and drink. As a result, demand for movie tickets changes by 6 units at every price.
b. The city eliminates a tax that it had been placing on all local entertainment businesses. The result is that the quantity supplied of movies at any given price changes by 10%.
Price Quantity Demanded Quantity Supplied
$5 26 16
$6 24 18
$7 22 20
$8 21 21
$9 20 22
5. Many changes are affecting the market for oil. Predict how each of the following events will affect the equilibrium price and quantity in the market for oil. In each case, sketch a supply and demand diagram to support your answer.
a. Cars are becoming more fuel efficient, and therefore get more miles to the gallon
b. the winter is exceptionally cold;
c. a major discovery of new oil is made off the coast of Norway;
d. the economies of some major oil-using nations, like Japan, slow down;
e. a war in the Middle East disrupts oil-pumping schedules;
f. landlords install additional insulation in buildings;
g. the price of solar energy falls dramatically;
h. chemical companies invent a new, popular kind of plastic made from oil. How does the ceteris paribus assumption help you in answering this question?
6. Say that the price of cocoa rises sharply at the same time that a greater quantity is consumed. What shift in demand or supply is most likely to have caused this pattern:
a. a rise in demand;
b. a fall in demand;
c. a rise in supply;
d. a fall in supply? Explain your reasoning.
7. A low-income country decides to set a price ceiling on bread so they can make sure that bread is affordable to the poor. The conditions of demand and supply are given in the following table. What are the equilibrium price and equilibrium quantity before the price ceiling? What will the excess demand or the shortage (that is, quantity demanded minus quantity supplied) be if the price ceiling is set at $2.40? At $2.00?At $3.60?
Price Supply Demand
$1.60 5,000 9,000
$2.00 5,500 8,500
$2.40 6,400 8,000
$2.80 7,500 7,500
$3.20 9,000 7,000
$3.60 11,000 6,500
$4.00 15,000 6,000
8. The table below shows information on demand and supply for boxes of 1 dozen water glasses. The lobbyists for the water glass producers persuade the government to establish a price floor of $48 per box. Sketch a diagram of the market for water glasses and identify the following areas.
a. Consumer surplus and producer surplus before the price floor is imposed.
b. Consumer surplus and producer surplus after the price floor is imposed.
c. The transfer of consumer surplus to producer surplus after the price floor is imposed.
d. Is the price floor economically efficient? If not, identify the area of deadweight loss.
e. Looking at the diagram, can you explain why the lobbyists for the water glass producers might argue for a price floor, even though some deadweight loss will occur?
Price Quantity Demanded Quantity Supplied
$12 10,000 0
$24 8,000 3,000
$36 6,000 6,000
$48 4,000 9,000
$60 2,000 12,000
$72 0 15,000
9. Many people wish to live in the beautiful town of Beachfront by the sea, but they don't like the rents. In its current market equilibrium, Beachfront has 20,000 rental apartments at an equilibrium price of $3,000 per month. The voters of Beachfront impose rent controls at the price of $2,000 per month and the number of rental apartments available in the market shrinks to $16,000. Based on this information, sketch demand and supply curves for the town of Beachfront.
a. Identify consumer surplus and producer surplus before the price ceiling is enacted.
b. Show how the price ceiling transfers producer surplus to consumers.
c. Show how the price ceiling creates deadweight loss.
d. If you were renting an apartment in Beachfront already, are you likely to care more about the transfer of producer surplus or about the deadweight loss? Explain briefly.