Week 2 Assignment
Ending each chapter and appendix in the text are the chapter summary, terms and concepts, and study questions. You are to review the chapter summary and the terms and concepts and then prepare answers to the following study questions.
3: #3 (a, b, c, and d)
What effect will each of the following have on the demand for small automobiles such as the Mini Cooper and Smart car?
a. Small automobiles become more fashionable.
Demand will increase as consumers are convinced they are better products
b. The price of large automobiles rises (with the price of small autos remaining the same)
Demand will increase for small autos because consumers do have a good alternative to large autos where they will save money.
c. Income declines and small autos are an inferior good.
Demand for small autos will decrease ...view middle of the document...
Ans. Supply will decrease
d. The expectation that the equilibrium price of auto tires will be lower in the future than currently.
Ans. Supply will increase
#8 (a and c),
Suppose the total demand for wheat and the total supply of wheat per month in the Kansas City grain market are as shown in the accompanying table.
a. What is the equilibrium price? What is the equilibrium quantity? Fill in the surplus-shortage column and use it to explain why your answers are correct.
The equilibrium price is $4.00 and the equilibrium quantity is 75.
c. Why will $3.40 not be the equilibrium price in this market? Why not $4.90? “Surpluses drive prices up; shortages drive them down.” Do you agree?
The equilibrium price in this market cannot be neither $3.40 nor $4.90 because the equilibrium price is the price where the intentions of buyers (demand) and sellers (supply) match, and in the graph neither one of them does at these prices.
I do not agree that surpluses drive prices up and shortages drive prices down because Surpluses induce competing sellers to lower the price that caused the surplus in the first place, to encourage buyers to take the surplus off their hands. In contrast, due to the fact that shortages represent that the quantity demanded exceeds the quantity supplied, the competition among buyers to get the utility wanted will drive the price up, eventually to the equilibrium price level.
#9 (b, d, and f)
How will each of the following changes in demand and/ or supply affect the equilibrium price and equilibrium quantity in a competitive market; that is, do price and quantity rise, fall, or remain unchanged , or the answers indeterminate because they depend on the magnitudes of the shifts? Use supply and demands diagrams to verify your answers.
b. Demand decreases and supply is constant.
Ans. quantity demanded down; price indeterminate
d .Demand increases and supply increases
Ans. Price up; quantity demanded up;
f. Supply increases and demand decreases
Ans. Price down; quantity indeterminate