Supply and Demand and New Equilibrium Price

Only available on StudyMode
  • Download(s) : 188
  • Published : August 27, 2012
Open Document
Text Preview
Problem 1
For each of the following draw a separate diagram to demonstrate the answer. (Hint: Remember the difference in a change in demand [supply] and a change in quantity demanded [supplied]. Don't shift both curves unless appropriate). Describe what happens to equilibrium price and sales. Explain why or why not this makes sense in the real world. -A-

Show the effect on the U.S. new construction residential housing market in the event of a severe economic recession.

In theory, during a recession both demand for, and the supply of homes would drop.   Demand would drop due to unemployment and lack of expendable cash among consumers.   Supply would drop as well due to construction companies going out of business, less availability of resources, and layoffs within the construction industry.

-B-
Show the effect on the U.S. air travel market if American Airlines unexpectedly folds (ceases operations) overnight.

-C-
Show the effect on the U.S. domestic car market if the price of foreign cars increases due to an exchange rate shock.

-D-
Show the effect on the market for large SUVs if the price of gasoline in the U.S. comes to rest at greater than $4 per gallon.

-E-
Show the effect of setting the price of Super Bowl tickets at a price lower than equilibrium price.

Problem 2
Use the data given in Problem 7 on page 77 of the text to answer the following questions: a) what is the equilibrium price?, b) if supply at every price is reduced by 10 gallons, what will the new equilibrium price be?, c) if the government freezes the price of gasoline at its initial equilibrium price, how much of a surplus or shortage will exist when supply is reduced as described above?, and d) illustrate your answers on a graph.

Problem 3
Refer to Problem 1 on page 76 of the text and determine the size of the market surplus or shortage that would exist at a price of (a) $40 (b) $20. Illustrate your answers on a graph.

Problem 4
Refer to Problem 6 on page 77 and...
tracking img