Exam 3: Demand, Supply, and Market Equilibrium

Each year Apple Computers produces a new line of IPods with greater storage capacity and more features. Sales continue to soar even though the prices each year rise as well. Is this a refutation of the law of demand or is there something else going on here that doesn't meet the eye?

Assume that you are currently making $15,000 a year as a sales clerk in a department store. At the end of your senior year in college in May you get a job offer from a large accounting firm that won't start until late August of that same year but which pays $45,000 per year. What would you expect might happen to your demand for an automobile and new clothes immediately and why?

List and describe three different input markets.

SCENARIO 1: Consider the market for generic light beer, a product that only has "Light Beer" on its label. We know that demand for generic light beer falls when income increases, demand rises when the price of other beer increases, and that demand rises when the price of potato chips falls. -Refer to Scenario 1. Graph and explain the effect on equilibrium price and quantity of beer due to an increase in the price of potato chips. How are the goods related?

Draw a supply curve for a hypothetical firm and explain the relationship.

Explain the law of supply. What does the law of supply imply about the shape of the supply curve?

Using the diagram below explain what will happen to equilibrium price and quantity if the supply curve shifts to the left as depicted from So to S2.

Define what a firm is and its role in the market.

A decrease in the demand for eggs results in a surplus of eggs at the original equilibrium price. Explain how market forces will act to eliminate the surplus.

Suppose you want to buy a popular brand of digital camera. Every store in town is out of stock. You are willing and able to pay the current market price of $300 for a camera, but you cannot find any available. Is the market for the digital camera in equilibrium? If not, is the market equilibrium price of the camera above or below $300? Use supply and demand analysis to explain your answer.

Suppose that the demand for good Y and the supply of good Y both increase. (a.) Is it possible to predict whether the equilibrium quantity of good Y will increase, decrease, or remain the same as a result of these changes? Why or why not? (b.) Is it possible to predict whether the equilibrium price of good Y increase, decrease, or remain the same as a result of these changes? Why or why not?

In 1999, both the equilibrium price and equilibrium quantity of widgets increased. Use supply and demand analysis to explain how these changes could have occurred.

Land in the South can often be used to grow either tobacco or cotton. Suppose the price of tobacco increases. Explain how the market for cotton will be affected.

Assume that there is a long-lost painting by Monet was discovered. The owner decides to auction it off to the highest bidder at Sotheby's. But before he auctions it he secretly makes a digital image of the painting so that he can make reproductions. What can we safely assume will happen to the demand and the price of these reproductions in the short run? What about the long run?

Explain how the market supply curve is derived. Does the law of supply apply to the market supply curve?

The graph below reflects the market for tickets to a movie theater in a small Midwestern town. Using the graph, show what happens if the price of a movie rental at the local video rental store rises. What happens to the equilibrium price and quantity?

Suppose that, last year, the price of peanuts fell and the quantity sold increased. Use supply and demand analysis to explain how these changes could have occurred.

The following are some changes that may take place in the market for textbooks. For each of the following, indicate what will happen to either the demand for or the supply of textbooks by listing which curve is affected and then the terms: "shift right or "shift left". (a.) An increase in student enrollment at universities across the country. (b.) A decrease in the price of ink used to print textbooks. (c.) A drop in income (textbooks are a normal good). (d.) An improvement in the technology used to print textbooks. (e.) An increase in college tuition.

SCENARIO 1: Consider the market for generic light beer, a product that only has "Light Beer" on its label. We know that demand for generic light beer falls when income increases, demand rises when the price of other beer increases, and that demand rises when the price of potato chips falls. -Refer to Scenario 1. Graph and explain the effect on equilibrium price and quantity of an increase in the price of premium beer. How are the goods related?

A supermarket manager discovers that his generic brand beans are disappearing off of his shelves faster than he can restock them and the premium brand beans are staying on the shelf going unsold. What can we probably say about the current prices of each of these products in relation to the market-clearing price?