Exam 3: Demand, Supply, and Market Equilibrium

Refer to the information provided in Scenario 2 below to answer the questions that follow. SCENARIO 2: Graphically illustrate each of the following effects on the market for home fitness equipment with supply and demand curves. State the effects on price and quantity. Consider each effect separately. -Refer to Scenario 2. Health clubs begin to offer extras to make going to health clubs easier, such as free parking and baby-sitting to encourage family memberships.

Suppose that the local hospital claims that the wages of nurses are too high. Yet, the hospital has 10 nursing positions open and no applicants for the jobs. Is the hospital's claim legitimate? Why or why not?

What is a demand schedule? Provide an example and explain it.

Define the following: market equilibrium, surplus, and shortage.

Some people will often remark that the used car market is a counter-cyclical business, meaning that the fortunes of the business tend to move in the opposite direction of the health of the economy. Why might this be true and what conclusion can you make about what kind of a good used cars would be classified as economically speaking?

A decrease in the supply of steel results in a shortage of steel at the original equilibrium price. Explain how market forces will act to eliminate the shortage.

A video rental store rents old movies for $1.50 per day. On average, 300 movies are rented each day. The store receives several copies of a new smash movie just released in video and decides to rent these movies at $3.50 per day. Now, 400 movies are rented each day. Thus, though the average rental price of a movie increased, the quantity rented increased. Does this mean that the law of demand does not hold for this market?

What is the difference between a demand schedule and a demand curve?

You are a major stockholder of a large corporation. You have news from a credible source that the company's earnings report is going to indicate record losses. If you and other major stockholders receive the same news, what is your likely behavioral response and what impact will that have on the price of the company's stock?

List three things that can cause an increase in demand. Be specific.

A free good is a good whose existence requires no opportunity cost to produce. How is this different from a good that is offered for a price of zero?

SCENARIO 3: Events prior to the 1995 baseball season, including a threatened "lockout" by owners if the players decided to end their strike, likely had a great effect on attendance at baseball games. Consider in this scenario market attendance as a measure of quantity and ticket prices as the measure of price. -Refer to Scenario 3. Explain the effect of consumer dissatisfaction on the market for beer purchased at baseball games.

Suppose there is news that indicates that gasoline supplies might suddenly become disrupted by a truckers' union strike. What would you expect would happen to the demand for gasoline in the present? How might consumers change their behavior and why? What impact would this news have on the price of gasoline immediately? Would it matter whether the news story was accurate?

There is a practice in the stock market known as "short selling" whereby an individual will borrow stock from someone, turn around and sell it and then buy it back when it's price has fallen in order to return the stock back to the lender. What expectation does this short seller have about the price of this company's stock? How can he expect to make money at this practice? What could go wrong that might cost him money?

Assume that there is a shortage of lobster and that for whatever reason prices have not risen to choke off the excess demand. Instead, the government has exhorted people to voluntary refrain from lobster consumption to "maintain a balance between supply and demand." Assume that the temporary public service announcements are "effective" and the public reduces its consumption of lobster. Explain using supply and demand analysis what should happen to the equilibrium quantity of lobster and its equilibrium price. Why would this plan not have much of an impact on the lobster market in the long run?

What relationship is shown by a demand curve?

Refer to the information provided in Scenario 2 below to answer the questions that follow. SCENARIO 2: Graphically illustrate each of the following effects on the market for home fitness equipment with supply and demand curves. State the effects on price and quantity. Consider each effect separately. -The cost of steel used in the production of many of the exercise products increases.

Refer to the information provided in Scenario 2 below to answer the questions that follow. SCENARIO 2: Graphically illustrate each of the following effects on the market for home fitness equipment with supply and demand curves. State the effects on price and quantity. Consider each effect separately. -Refer to Scenario 2. "Infomercials" advertising home fitness equipment begin to run at night on Cable TV stations.

The table below shows the supply and demand for T-shirts: (a.) If the price in the market is currently $11.00, is the market in equilibrium? Explain. (b.) If the price in the market is currently $8.00 and the supply and demand for T-shirts are stable, will the price remain $8.00? Why or why not?

Explain how price expectations can affect the supply of a product.