ECON 1B03 Chapter Notes - Chapter 4: Economic Equilibrium, Demand Curve, Shortage

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1 Mar 2013

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ECON 1B03 Full Course Notes

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Suppose that for some reason the market price of ice cream cones was . 50. At . 50, consumers will only buy 4 cones, but firms offer 10 cones for sale. Suppose that for some reason, the market price of ice cream cones was . 50. At . 50, consumers will want to buy 10 cones, but firms will only offer 4 cones for sale. The price of any good adjusts to bring the quantity supplied and the quantity demanded for that good into balance. The market returns to equilibrium if it is left to operate freely. Often events can happen which will shift demand or supply or both. This will lead to a change in equilibrium p and q. We can sue our diagrams to see what happens to equilibrium when curves shift (this is called comparative statics). Decide whether the event shifts the supply or demand curve (or both) Decide whether the curve(s) shift(s) to the left or to the right.

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There is a market for polio vaccines. Demand is given by Qd=180 -4Pd, where Pd is the price of the vaccine paid by consumers and Qd is the number of vaccines consumed divided by ten million. The supply of vaccines is given by Qs=2Ps-60 with Ps and Qs being the price received by suppliers and the number of vaccines supplied divided by ten million.

1) Calculate equilibrium algebraically.

2) Define the term externality and discuss why the government may want to subsidize vaccinations.

3) Assume that the government gives consumers a subsidy for each vaccine that they consume. What happens to the demand curve? To the supply curve? Does the equilibrium quantity go up or down? Does the price that producers receive go up or down? By more or less than the amount of the subsidy?

4) Now assume that the government gives a subsidy to each producer for each vaccine that gets produced. What happens to the demand curve? To the supply curve? Does the equilibrium quantity go up or down? Does the net price that consumers pay go up or down? By more or less than the amount of the subsidy?

5) Instead, suppose that the government wants producers to make more vaccines and implements a price floor: consumers must pay at least $42 for the vaccine. Is there an equilibrium in this market? How many vaccines are produced? How many are consumed?

6) Lastly, the government wants more people to become vaccinated, so it implements a price ceiling: consumers will pay at most $36 for the vaccine. Is there an equilibrium in this market? How many vaccines are produced? How many are consumed? Who will get vaccinated?

viridianbeetle223

Who bears the primary costs of a rent control program?

landlords

renters that get rent-controlled apartments

taxpayers

the wealthy

Assume the demand for sushi is Qd = 180 - 3P, where Qd is quantity demanded and P = price in dollars. The supply of sushi is Qs = 80 + 5P, where Qs is quantity supplied (and P is, again, price in dollars). A price of $20 would result in:

	A.	Excess supply of 60
	B.	Excess supply of 120
	C.	Excess supply of 140
	D.	Excess demand of 140

US agricultural price supports are politically popular because

They have no adverse impacts

The US would have food shortages without them

The benefits accrue to a large number of voters and the costs are paid by a small number of voters

The costs are spread out among millions of people

	A.	$15.50
	B.	$12.50
	C.	$10
	D.	$15

Price floors and ceiling prices:

cause the supply and demand curves to shift until equilibrium is established.

both cause surpluses.

interfere with the rationing function of prices.

A change in the price of a good leads to a change in ________, which leads to a ___________

quantity supplied; shift of the supply curve

supply; shift of the supply curve

quantity supplied; movement along the supply curve

When the supply of a product increases, this implies that

the price of the product first declined

more will be purchased at the same price

producers will be willing to accept a lower price for each unit sold

demand for the good must have increased

producers will offer less for sale at each possible price

If there is a excess demand for product X:

fewer resources will be allocated to the production of this good.

the price of the product will rise.

the supply curve will shift to the left and the demand curve to the right, eliminating the shortage.

the price of the product will decline.

Which of the following will occur when there is a simultaneous decrease in demand and a decrease in supply?

B and D both necessarily occur

An increase in equilibrium quantity

A and C both necessarily occur

An increase in price

A and D both necessarily occur

A decrease in price

A decrease in equilibrium quantity

Velcro is becoming more and more popular for a variety of uses, including as fasteners for shoes. What should happen to the equilibrium price and quantity for shoelaces as a result?

Both price and quantity should decrease.

Price should increase and quantity decrease.

Both price and quantity should increase.

Price should decrease and quantity increase.

Nothing.

If the government imposes a ceiling price on apartment rents, we would expect to observe all of the following except one. Which is the exception?

	A.	conversion of some apartment complexes to condos
	B.	a shortage
	C.	an increase in the number of new apartment complexes being built
	D.	lower maintenance of existing apartments
	E.	long waiting lists for apartment seekers

supply; movement along the supply curve

both cause shortages.

chocolatebadger640

ECON 1B03 Chapter Notes - Chapter 4: Economic Equilibrium, Demand Curve, Shortage

ECON 1B03 Full Course Notes

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