Exam 4: Supply and Demand

Consider the following supply table, which represents the supply of comic books by Bill, Judy, and Sally. $\begin{array} { | l | r | r | r | r | r | } \hline & \begin{array} { c } \text { Price } \\\text { (in \$) }\end{array} & \begin{array} { c } \text { Bill's } \\\text { Supply }\end{array} & \begin{array} { c } \text { Judy's } \\\text { Supply }\end{array} & \begin{array} { c } \text { Sally's } \\\text { Supply }\end{array} & \begin{array} { c } \text { Market } \\\text { Supply }\end{array} \\\hline \text { A } & \$ 2 & 0 & 9 & 1 & \\\hline \text { B } & 4 & 0 & 2 & 2 & \\\hline \text { C } & 6 & 0 & 4 & 3 & \\\hline \text { D } & 8 & 0 & 5 & 4 & \\\hline \text { E } & 10 & 0 & 6 & 5 & \\\hline \text { F } & 12 & 0 & 7 & 6 & \\\hline \text { G } & 14 & 2 & 8 & 6 & \\\hline \text { H } & 16 & 4 & 10 & 6 & \\\hline\end{array}$ (a) Fill in the "market supply" column of the above table. (b) Use the grid below to draw the supply curves for comic books of Bill, Judy, and Sally. Then draw in the market supply curve. (c) Compare the supply curve you have drawn for Sally and Judy. Which of these two is more influenced by increases in the price of comic books? Explain.

Consider the following supply and demand diagram for Tootsie Rolls. Note that the market is currently in equilibrium, with a price of P* and a quantity exchanged of Q*. For each of the scenarios below, draw a picture that illustrates the impact on price and quantity exchanged. Explain each of your pictures by describing what is happening to the demand side of the market. (a) The American Association of Chocolate Lovers designates the Tootsie Roll as its official candy. (b) The Tootsie Roll Company computerizes their Tootsie Roll manufacturing plant, lowering unit costs of production.

Demonstrate graphically and explain verbally the concept of equilibrium in a supply and demand model.

Demonstrate graphically and explain the difference between a decrease in the quantity supplied and a decrease in supply. Describe what might have caused each to occur.

The diagram below represents the consumer side of the market for skateboards in New York. The current price of skateboards is P_A. Each of the events described below will have some impact on the demand for 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 "shift in"). (a) A drop in the price of skateboards. (b) A drop in the price of kneepads. (c) A decline in income.

What is equilibrium? Explain what it means to say equilibrium is a characteristic of the model, not a state of the world.

Explain the error in the following statement: "For the past 10 years, the prices of automobiles have been rising and each year people have purchased more autos. Price and quantity demanded are directly related and the economists' law of demand is incorrect."

What is meant by "the fallacy of composition"? Because of the fallacy of composition, it is not possible to apply the microeconomic analysis of individual firms and consumers directly to the macroeconomic analysis of entire nations. Explain why this is so.

Consider the following supply and demand picture of the market for Oreos. Note that the market is currently in equilibrium, with a price of P* and a quantity exchanged of Q*. For each of the scenarios below, draw a picture that illustrates the impact on price and quantity exchanged. Explain each of your pictures by describing what is happening to the supply side of the market. (a) The price of Hydrox cookies goes down. (b) Due to a disastrous growing season, the price of cocoa triples.

Consider the following demand table, which represents the demand for comic books by John, Liz, and Alex. Price (in \ ) John's Demand Liz's Demand Alex's Demand Market Demand \ 2 4 10 6 4 4 9 5 6 0 8 4 8 0 7 3 10 0 6 2 12 0 5 1 14 0 4 0 16 0 3 0 (a) Fill in the "market demand" column of the above table. (b) Use the grid below to draw the demand curves for comic books of John, Liz, and Alex. Then draw in the market demand curve. (c) Notice that Liz's demand is everywhere to the right of Alex's demand. Can you conclude from this that Liz likes comic books more than Alex does? Explain.

Explain what it means to say that the cotton market is in "equilibrium." What forces (other than market forces) can be involved in determining the equilibrium price of cotton?