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Home :: Contents (2267) :: Economics (74) :: Demand and Supply

Demand and Supply (18 problems)


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Problem #1: Consumers and Producers Surplus

Price

Quantity Demanded

I Quantity Supplied

($ per hamburger)

(Hamburgers per day)

0

500

0

1

450

 50

2

400

 100

3

350

 150

4

300

 200

5

250

 250

6

200

 300

7

150

 350

8

100

 400

9

50

 450

10

0

 500

Answer the following questions with respect to the table above

a) What is the minimum price that suppliers are willing to accept for the 150th hamburger?

b) What is the maximum price that consumers are willing to pay for the 150th hamburger?

c) What is the level of efficient quantity?

d) What is the Consumers surplus? What is the Producers surplus? Assume efficiency of markets.

e) At 150 hamburgers what is the deadweight loss?

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Problem #2: Consumers and Producers Surplus

With the help of diagrams answer the following:

a) Compare price and output in a perfectly competitive firm and in a monopoly

b) Illustrate the transfer of consumer's surplus from a perfectly competitive industry to a monopoly

c) Highlight the inefficiency prevalence in a single-price monopoly.

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Problem #3: Consumers and Producers Surplus

Answer the following questions with respect to the table above

a) What is the minimum price that suppliers are willing to accept for the 150th hamburger?

b) What is the maximum price that consumers are willing to pay for the 150th hamburger?

c) What is the level of efficient quantity?

d) What is the Consumers surplus? What is the Producers surplus? Assume efficiency of markets.

e) At 150 hamburgers what is the deadweight loss?

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Problem #4: Demand and Supply Function

Suppose the demand equation for all-day passes to an amusement park is given by
p = 70 – 0.02q, where p is the price of the pass in dollars and q is the number of people attending at that price.

a. What price corresponds with an attendance of 3000 and what is the total revenue at that price?

b. Write the revenue function as a function of attendance and then determine the attendance that will maximize the revenue.

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Problem #5: Demand and Supply Function

Suppose that the demand curve for bicycles in New York City during the Fall is given by the following equation; and the supply curve for bicycles in NYC during the Fall is given by the following curve,

.

a) What is the choke price? What is the slope of the demand curve? What is the slope of the supply curve?

b) Graph the supply and demand curves for the market of bicycles in NYC during the Fall.

c) What is the equilibrium price and quantity in the market for bicycles in New York during the Fall?

d) Fall has started in NYC. Unexpectedly, the weather turns out to be quite warm. Happy New Yorkers decide to spend more time biking around. As result, the original demand curve for bicycles in the Fall increases by 4 bicycles at every price. What is the new demand curve? Show it in the graph in (a).

e) What is the new equilibrium price and quantity?

f) Why doesn't the new equilibrium quantity you found in (e) also increase by 4 bicycles? Briefly explain in words.

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Problem #6: Factors that shift the Demand and Supply

Use supply and demand curves to illustrate the following:

a) The government of Nova Scotia restricts the fishermen from catching cod, an endangered species. Illustrate the impact of this legislation on

The restaurant industry

2) The labour market

b) Due to the recession of 1991, income and employment fell in Toronto. Illustrate the impact of this decline in the automobile industry.

c) The United States is a major trading partner of Canada. Assume the value of the Canadian dollar falls with respect to the US dollar. Discuss the impact of a low Canadian dollar on the quantity demanded of American beef.

d) In many urban cities of the world rents are fixed. Discuss the impact of lifting this restriction on the housing market.

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Problem #7: Factors that shift the Demand and Supply

Use supply and demand curves to illustrate the following:

a) The government of Nova Scotia restricts the fishermen from catching cod, an endangered species. Illustrate the impact of this legislation on

The restaurant industry

2) The labour market

b) Due to the recession of 1991, income and employment fell in Toronto. Illustrate the impact of this decline in the automobile industry.

c) The United States is a major trading partner of Canada. Assume the value of the Canadian dollar falls with respect to the US dollar. Discuss the impact of a low Canadian dollar on the quantity demanded of American beef.

d) In many urban cities of the world rents are fixed. Discuss the impact of lifting this restriction on the housing market.

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Problem #8: Factors that shift the Demand and Supply

How would the following changes in price affect total revenue? That is would total revenue increase, decline, or remain unchanged

a) Price rises and demand is inelastic

b) Price falls and demand is elastic.

c) Price rises and supply is elastic

d) Price falls and demand is unit elastic

e) Price falls and demand is inelastic

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Problem #9: Factors that shift the Demand and Supply
Using appropriate diagrams show the impact of changes in supply or/and demand on market equilibrium. Consider all possible cases. Illustrate and explain. ( 8 Possible Cases)
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Problem #10: Factors that shift the Demand and Supply

For each case below, identity the effects on demand and/or supply and on equilibrium price and equilibrium quantity in a competitive market-for product A; that is, do price and quantity rise, fall, remain unchanged, or are the answers indeterminate, depending on the magnitude of the shifts in supply and demand? Explain each of your answers

a) The price of a substitute good B falls, while a subsidy in the production of A is offered by the Government.

b) Product A becomes more fashionable while price of complementary good C falls.

c) The demand for A is affected by a rise in incomes (assuming A is a normal good), while there is an excise tax imposed on the production of A

d) The price of steel which is required to produce A rises, white the price of B a substitute for A rises.

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Problem #11: Factors that shift the Demand and Supply

For each case below, identity the effects on demand and/or supply and on equilibrium price and equilibrium quantity in a competitive market-for product A; that is, do price and quantity rise, fall, remain unchanged, or are the answers indeterminate, depending on the magnitude of the shifts in supply and demand? Explain each of your answers

a) The price of a substitute good B falls, while a subsidy in the production of A is offered by the Government.

b) Product A becomes more fashionable while price of complementary good C falls.

c) The demand for A is affected by a rise in incomes (assuming A is a normal good), while there is an excise tax imposed on the production of A

d) The price of steel which is required to produce A rises, white the price of B a substitute for A rises.

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Problem #12: Factors that shift the Demand and Supply
The quantity demanded of normal goods will increase when price falls and visa versa. Illustrate and explain. Are there any exceptions? (Illustrate and explain.
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Problem #13: Income and Substitution Effect

John has a paper route and spends all his weekly allowance on hamburgers and pop. The price of a hamburger is $2 and the price of a pop is $1. Every week John buys 20 hamburgers and 10 pop. If the price of a hamburger rises to $4 (because of a ban on beef imports) and the price of a pop falls to 50 cents. Draw indifference curves to answer the following:

a) given the change in prices will John be able to purchase his usual quota of 20 hamburgers and 10 pop? Will John still want 20 hamburgers and 10 pop?

b) If John is compelled to change the quantities of the products will he buy more hamburgers or more pop? Explain.

c) What prices change is it an (i) income effect? (ii) a substitution effect? (iii) or both?

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Problem #14: Income and Substitution Effect

John has a paper route and spends all his weekly allowance on hamburgers and pop. The price of a hamburger is $2 and the price of a pop is $1. Every week John buys 20 hamburgers and 10 pop. If the price of a hamburger rises to $4 (because of a ban on beef imports) and the price of a pop falls to 50 cents. Draw indifference curves to answer the following:

a) given the change in prices will John be able to purchase his usual quota of 20 hamburgers and 10 pop? Will John still want 20 hamburgers and 10 pop?

b) If John is compelled to change the quantities of the products will he buy more hamburgers or more pop? Explain.

c) What prices change is it an (i) income effect? (ii) a substitution effect? (iii) or both?

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Problem #15: Market Equilibrium

In a competitive market, the market demand is Qd = 60 - 6P and the market supply is Qs = 4P. The full economic price (ref. non-pecuniary price) under a price ceiling of $3 is

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Problem #16: Market Equilibrium

Suppose market demand and supply are given by Q d = 100 - 2P and Q S = 5 + 3P. The

equilibrium quantity is:

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Problem #17: Market Equilibrium

Suppose your firm faces a demand curve as follows: Q dx = 100 – 0.3PX + 0.6PY + 0.03M where M is per capita income currently estimated at $22,000. PY is $400. At what price would your firm maximize its total revenues and what would that revenue be at that point? (Hint: Simplify the demand function by inserting the given values of PY and M. Then think about where TR is maximized. Remember that for this particular linear demand function, αx = -0.3. Find price and TR.

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Problem #18: Taxes

An economy is made up of five individuals, whose incomes are $40,000, $26,000, $18,000, $12,000, and $3000. Based on this data what percentage of before tax income is earned by each income quintile? A lump sum tax of $1000 is imposed on each individual in this economy in order to finance a new health program. What percentage of after tax income is received by each income quintile? Has the distribution of income been made more or less unequal? Explain.

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