Exam 4: Demand and Supply Applications

Explain how low-skilled workers might actually be made worse off from a minimum wage law in terms of working conditions and job training. In addition, what might be the long-run impact on wages and earnings?

The Deepwater Horizon oil spill in the Gulf of Mexico which began from an explosion on April 20, 2010 resulted in a ban on shrimp fishing that measures about 10% of the Gulf. Using the graph below assume that the original supply curve before the spill is represented by So and the new supply curve is represented by S2 explain the process that takes place to reach a new equilibrium.

Suppose that the equilibrium price of a gallon of gas is $3.75 per gallon. The government decides to place a price ceiling on gasoline and will not allow sellers to charge more than $4.00 per gallon. Draw this situation using a graph. Make sure that you show the original equilibrium and the effect of the price ceiling on the market. What will happen in this market?

When is the price of a product demand determined?

Why is it that people who have to fly at a moment's notice often pay some of the highest air fares whereas people who wait until the last minute to buy a ticket to a live performance of play may be able to get a better price than someone who bought their ticket months in advance.

Consumers are often bewildered by the different array of choices, plans and prices that are offered by cell phone service companies. Explain in terms of consumer surplus why this makes sense from both the company's perspective and that of the consumer.

Define the process of queuing.

List some types of non-price rationing systems.

Assume that policy makers in the state of California respond to the fury by residents of recent price hikes for the price of water and respond by capping water prices in 2010 to $.10 per gallon that they were a few years ago rather than what the market price otherwise would be at $.25 per gallon. Explain with the use of a graph what would happen if the state legislature were to impose such a price control.

Explain what will happen when the government imposes a minimum price that is below the market equilibrium price. Why is this true?

What are ration coupons and what is their purpose? Provide a historical or current example.

What reasons do governments often give to justify the decision to not allow price to ration goods?

Assume that the cost of producing a hardback book is roughly equivalent to producing a paperback book. Explain how and why then do publishing companies charge higher prices for the hardback book and a much lower price for the paperback book.

Explain how the price system eliminates a shortage.

Suppose the demand for bananas increases. Explain how the price of bananas adjusts after the increase in demand.

Rent control is typically imposed ostensibly for the purpose of helping the poor. Why might you be able to argue that few poor people will actually be the beneficiaries of such controls?

Often bar owners will require that patrons stand in a line to get a wristband entitling them to pay a preferred price for drinks if they arrive early to the bar. The wristbands are typically tamper- resistant and can be easily identified if patrons have been switching wristbands with other customers. What is the bar owner concerned about and why does he make his patrons wear these bands?

Suppose that the equilibrium rent for a two-bedroom apartment in downtown Chicago is $900 per month. The city council decides to place a price ceiling on apartments and will not allow landlords to charge more than $700 per month. Draw this situation using a graph. Make sure that you show the original equilibrium and the effect of the price ceiling on the market. What will happen in this market?

What two important functions are performed by the price system?

Colleges and universities often do not pay salaries that are market-driven. For example, it is typical for a history professor to make the same as an economics professor. What kinds of problems are likely to result from this kind of a pay scale?