1-5: Illustrate the following with supply and demand curves. For each, include 1-3 sentences explaining your graph. For full credit, graphs must be both fully labeled and correct, and explanations must be complete and correct.
- With increased access to wireless technology and lighter weight, the demand for laptop computers has increased substantially. Laptops have also become easier and cheaper to produce as new technology has come online. Despite the shift in demand, prices have fallen.
- Cranberry production in Massachusetts totaled 2.37 million barrels in 2008, a 56% increase from the 1.52 million barrels produced in 2007. The price of cranberries increased from $49.80 per barrel in 2007 to $56.70 per barrel in 2008.
- Before economic reforms were implemented in the countries of Eastern Europe, regulation held the price of bread substantially below equilibrium. When reforms were implemented, prices were deregulated and the price of bread rose dramatically. Illustrate the market for bread before reforms and show the impact of reforms on quantity demanded and quantity supplied.
- The steel industry has been lobbying for high taxes on imported steel. Russia, Brazil, and Japan have been producing and selling steel on world markets at $610 per metric ton, well below what equilibrium would be in the United States with no imports. If no imported steel was permitted into the country, the equilibrium price would be $970 per metric ton. Show supply and demand curves for the United States, assuming no imports; then show what the graph would look like if U.S. buyers could purchase all the steel that they wanted from world markets at $610 per metric ton; show the quantity of imported steel.
- The U.S. government administers two programs that affect the market for cigarettes. Media campaigns and labeling requirements are aimed at making the public award of the health dangers of cigarettes. At the same time, the Department of Agriculture maintains price supports for tobacco. Under this program, the supported price is above the market equilibrium price and the government limits the amount of land that can be devoted to tobacco production. Illustrate graphically the effects of both policies on the market for cigarettes. In your discussion answer the following: Are these two programs at odds with the goal of reducing cigarette consumption?
6-10. Suppose the market demand for pizza is given by
Qd = 300 – 20P and the market supply for pizza is given by
Qs = 20P -100, where P = price (per pizza)
- Graph the supply and demand schedules for pizza using $5 through $15 as the value of P.
- In equilibrium, how many pizzas would be sold and at what price?
- What would happen if suppliers set the price of pizza at $15? Explain the adjustment process.
- Suppose the price of hamburgers, a substitute for pizza, doubles. This leads to a doubling of the demand for pizza. (At each price, consumers demand twice as much pizza as before.) Write the expression for the new market demand for pizza.
- Find the new equilibrium price and quantity of pizza.
- A number of towns in the United States have begun charging their residents for garbage pickup based on the number of garbage cans filled per week. The town of Chace decided to increase its per can price from 10 cents to 20 cents per week. In the first week Chase found that the number of cans that were brought to the curb fell from 550 to 525 (although city workers complained that the cans were heavier). A senior seminar economics class ran the numbers, informed their professor that demand for disposal was inelastic, and wrote a letter that recommended that the city raise the price more to maximize town revenue from the program. At the end of the next senior seminar, one year later, the new class discovered that, at a price of 30 cents per can, the number of cans has fallen to 125 and two revenues are down. (A) Compute the price elasticity of demand in the first and second cases. (B) Explain what may have happened, including factors that affect price elasticity of demand.
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On this site, we cannot simply do entire homework assignments. Instead, I will help you through the first three examples that you have posted.
In the first example, prices have fallen even though the demand for the laptops has gone up. The only way that this could happen is if the supply rose enough to offset the increase in demand. An increase in demand causes prices to rise, but an increase in supply causes them to fall. If supply increased enough (for example, if manufacturers found ways to reduce their labor costs by a large amount), you could have a decline in price even as demand increases.
Now for the second example. Here, we have an increase in supply accompanied by an increase in the price even though increases in supply are supposed to cause the price to drop. This could happen if demand for the cranberries increased to offset the increase in supply. Perhaps cranberries became more popular and people therefore demanded more of them.
Finally, we will look at the third example. In order to show the market for bread before reforms, draw intersecting supply and demand curves. Then draw a horizontal line below the equilibrium. This represents the price ceiling for bread. You will see that the line intersects the supply curve at a much lower quantity the point where it intersects the demand curve. This means the quantity demanded for bread at this price is much higher than the quantity supplied. When deregulation occurred, the price rose to the equilibrium. You will see that this resulted in an increase in quantity supplied and a decrease in quantity demanded.
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