Supply and Demand

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Chapter 2
1) Suppose a new discovery in computer manufacturing has just made computer production cheaper. Also, the popularity and usefulness of computers continues to grow. Use Supply and Demand analysis to predict how these shocks will affect equilibrium price and quantity of computers. Is there enough information to determine if market prices will rise or fall? Why?

2) Suppose the cable TV industry is currently unregulated. However, due to complaints from consumers that the price of cable TV is too high, the legislature is considering placing a price ceiling on cable TV below the current equilibrium price. Assuming the government does make this price ceiling law, please construct a diagram that shows the impact of this law on the cable TV market, and please briefly explain the effects on market prices and quantities with supply and demand analysis. Also, if the cable TV company is worried about disgruntling customers, the company may introduce a different type of programming that is cheaper for the company to provide yet is equally appealing to customers. What would be the effects of this action?

3) Harding Enterprises has developed a new product called the Gillooly Shillelagh. The market demand for this product is given as follows:
Q = 240 - 4P
a.At what price is the price elasticity of demand equal to zero?
b.At what price is demand infinitely elastic?
c.At what price is the price elasticity of demand equal to one?
d.If the shillelagh is priced at $40, what is the point price elasticity of demand? Answer:

4) The U.S. Department of Agriculture is interested in analyzing the domestic market for corn. The USDA's staff economists estimate the following equations for the demand and supply curves:
Qd = 1,600 - 125P
Qs = 440 + 165P
Quantities are measured in millions of bushels; prices are measured in dollars per bushel.
a.Calculate the equilibrium price and quantity that will prevail under a completely...
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