Chat with AIExam 4: Supply and Demand
The diagram below represents the producer side of the market for skateboards in New York. The current price of skateboards is PA. Each of the events described below will have some impact on the supply of skateboards. For each event, draw a picture to illustrate the effect of the event. Be sure to explain your pictures using pertinent economic terminology ("movement along" or "change in quantity"). 
(a) A drop in the price of skateboards.
(b) An increase in the price of wheels used in the manufacturing of skateboards.
(a) A drop in the price of skateboards.
(b) An increase in the price of wheels used in the manufacturing of skateboards.
(105) 
Verified(a) The diagram: 
A drop in the price of skateboards, say from PA to PB, results in a movement downward along the supply curve, such as shown above from A to B, resulting in fewer skateboards offered for sale (QA to QB). Using economic terminology, this is referred to as a decrease in the quantity supplied.
(b) The diagram: 
An increase in price of wheels used in making the skateboards means the cost of manufacturing skateboards increases. This results in a shift up (left) of the supply curve for skateboards, from S to S'. At the original price of PA, sellers were willing to supply the quantity at Point A on supply S but now are willing to sell the quantity at Point B on S'. Using economic terminology, this leftward shift of the supply curve is referred to as a decrease in supply.
Consider the supply and demand schedules below to answer the questions that follow: Price Qty. Qty. Demanded Supplied \ 10 0 10 9 1 9 8 2 8 7 3 7 6 4 6 5 5 5 4 6 4 3 7 3 2 8 2 1 9 1 (a) In a free market, what will the equilibrium price be?
(b) What will the equilibrium quantity demanded and quantity supplied be?
(c) If price were $2, what would happen? (Discuss in terms of adjustment to equilibrium.)
(d) If price were $7, what would happen? (Discuss in terms of adjustment to equilibrium.)
(e) If price were $5, what would happen? (Discuss in terms of adjustment to equilibrium.)
(88) Verified(a) $5.00, where quantity demanded equals quantity supplied.
(b) 5 of each.
(c) At a price of $2, below equilibrium, quantity demanded would exceed quantity supplied. There would be a shortage and suppliers would raise their prices to eliminate the shortage. The price would rise until quantity supplied equaled quantity demanded at $5.
(d) At a price of $7, above equilibrium, quantity supplied would exceed quantity demanded. There would be a surplus and suppliers would lower their prices to eliminate the surplus. The price would decline until quantity supplied equaled quantity demanded at $5.
(e) At a price of $5, quantity supplied equals quantity demanded. Price would not change since quantity supplied equals quantity demanded at $5.
Using graphs, explain what will happen to equilibrium price and equilibrium quantity of a product as a result of each of the following scenarios:
a. A rise in the number of buyers and a decrease in the cost of producing the product.
b. A decrease in the number of suppliers and an increase in the number of buyers.
c. An increase in the cost of production and a decrease in consumers' income.
d. Advances in the technology used to produce the product and a decrease in the price of a substitute.
e. A decrease in the tax on the product imposed on consumers and a decline in the price of a complement.
f. A government program that subsidizes the price of the product to consumers and a tax imposed on the producer.
(85) Verifieda. The supply curve shifts to the right, and the demand curve shifts to the right. Both events raise the equilibrium quantity, but the impact on equilibrium price is ambiguous. 
b. The supply curve shifts to the left, and the demand curve shifts to the right. Both events raise the equilibrium price, but the impact on equilibrium quantity is ambiguous. 
c. The supply curve shifts to the left, and the demand curve shifts to the left. Both events lower the equilibrium quantity, but the impact on equilibrium price is ambiguous. 
d. The supply curve shifts to the right, and the demand curve shifts to the left. Both events lower the equilibrium price, but the impact on equilibrium quantity is ambiguous. 
e. Both events shift the demand curve to the right. As a result, both equilibrium price and equilibrium quantity rise. 
f. The supply curve shifts to the left, and the demand curve shifts to the right. As a result, equilibrium price rises, but the impact on equilibrium quantity is ambiguous. 
Given the following individual supply tables for individuals A-D,
(a) Construct a market supply curve.
(b) Demonstrate a movement along the market supply curve. Price A B C D .50 0 1 9 3 1.00 0 2 2 4 1.50 0 3 4 5 2.00 5 4 6 6 2.50 5 5 8 7 3.00 5 6 10 8
(73) Use examples to demonstrate why the ability of consumers and producers to substitute explains the behavior that we call the "Law of Demand" and the "Law of Supply"?
(79) What are the "other things constant" when drawing a demand curve? What are the "other things constant" when drawing a supply curve?
(84) Demonstrate graphically and explain verbally the concept of excess demand. Is price above or below equilibrium?
(91) What are normal goods? What are inferior goods? Give an example of each type.
(85) Given the following individual demand tables for individuals A-D, construct a market demand curve. Price A B C D .50 5 6 10 8 1.00 5 5 8 7 1.50 5 4 6 6 2.00 0 3 4 5 2.50 0 2 2 4 3.00 0 1 0 3
(73) The market for Columbian coffee beans is given in the diagram below. The market is currently in equilibrium with a price of P0 and a quantity exchanged of Q0. Suppose that the Columbian government takes over the production and distribution of all coffee beans grown in Columbia. In an effort to increase revenue from the sales of coffee beans, the government decides to raise the price above P0. Describe why it would take more effort for the government to raise the price to P2 than it would for it raise the price to P1. 
(93) The table below shows the quantity demanded and quantity supplied of DVDs at each price level. Price (dollars) Quantity Demanded Quantity Supplied Surplus (+) Shortage (-) 20.00 10 500 18.00 25 400 16.00 45 250 14.00 80 200 12.00 140 140 10.00 200 80 8.00 300 40 6.00 450 5 (a) Fill out the column entitled Surplus/Shortage.
(b) What are the equilibrium price and equilibrium quantity in this market?
(c) Suppose that consumers' taste changed in favor of DVDs due to their high quality. What happens at the original equilibrium price level calculated in Part (b)?
(d) Suppose that advances in technology reduced the production cost of DVD players. What happens at the original equilibrium price level calculated in Part (b)?
(75) Bob's Burgers charged $3.50 for a quarter-pound hamburger with all the fixin's, and sold 7,500 of them. The following year, although Bob raised the price to $3.75, sales of his burgers rose to 8,200. Use the concepts of a shift in the demand curve versus a movement along the demand curve to explain why this increase in sales does not represent a violation of the law of demand.
(88) In one year, the price of soybeans was $3.50 a bushel, and the Jones family farm planted 7,500 acres of them. In the following year, although the price of soybeans fell to $3.25 a bushel, the Jones family farm planted 8,200 acres of them. Use the concepts of a shift in the supply curve versus a movement along the supply curve to explain why this increase in soybean acreage does not represent a violation of the law of supply.
(77) Explain the following statement: "The invisible hand pushing toward a supply/demand equilibrium would be thwarted by social and political forces pushing in the other direction." Give examples of the social force and political force that the statement refers to.
(81) A change in a shift factor of demand will actually cause both a change in quantity supplied and a change in quantity demanded. Explain why, and demonstrate with a graph.
(70) John and Steve are roommates at Siberian University. They are planning to have a party this coming weekend and need to go shopping for snacks. They know all of their friends like nacho cheese flavored tortilla chips, so that is the only type of snack they plan to buy. After pooling their cash, they take $18 and head out to the nearest grocery store. Walking down the chip aisle, they fill their cart with 6 bags of Tostada brand chips at $3 per 14-ounce bag. Continuing down the chip aisle, they see Durango brand chips are available at $2 per 14-ounce bag, so they put all of the Tostada chips back and instead purchase 9 bags of Durango chips. Is John and Steve's behavior consistent with "the law of demand"? Explain. (Extra Credit: If they hadn't changed their minds, would they have violated the law of demand?)
(90) Demonstrate graphically and explain verbally the concept of excess supply. Is price above or below equilibrium?
(80) Demonstrate graphically and explain the difference between an increase in the quantity demanded and an increase in demand. Describe what might have caused each to occur.
(69) How is the "Law of Demand" different from the "Law of Supply"? In what ways are they similar to each other?
(77) Stuffed-Crust Pizza is a new pizza introduced by Pizza Hut. What happens to the equilibrium price and equilibrium quantity of Stuffed-Crust Pizza in each of the following situations?
a. Due to weather conditions, the output of wheat decreased and the price of wheat flour increased.
b. The price of beer decreased.
c. Domino's Pizza introduced a similar pizza that sold for $1 less than the one sold by Pizza Hut.
d. A recession reduced households' income.
e. A new oven technology reduced the time it takes to bake a pizza.
(85) 
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