ECON 200 Market Equilibrium Solution
ECON 200 Market Equilibrium
Market Equilibrium
a. If the price was $15 per bottle, the quantity
... [Show More] demanded would be 5000 bottles, the quantity supplied would be 2500 bottles, and there would be upward pressure on price.
b. In the market for sunscreen, the equilibrium price is $20 and the equilibrium quantity is 4000 bottles.
The market for ice cream bars on a hot day at the local beach is summarized in the table below.
If the current market price is $1.80 per ice cream bar, there will be a shortage of 70 ice cream bars.
The graph below depicts the market for oranges at a local farmers' market.
a. If the producer tries to sell oranges at $0.80 per pound, the quantity supplied will equal 110 pounds of oranges and the quantity demanded will be 80 pounds of oranges.
b. At this price, there will be a surplus of 30 pounds of oranges.
The monthly demand and supply schedule for new cars at a large California dealership is shown in the table below.
If the dealership is currently charging $25,000 for a new car, at the end of the month there will be:
a shortage of 125 cars.
a surplus of 5,000 cars.
a surplus of 125 cars.
a shortage of 5,000 cars.
neither a surplus nor a shortage - the market will be in equilibrium.
The graph below shows the market for pineapples.
a. In the market for pineapples, the original equilibrium price is $2 per pound and the original equilibrium quantity is 20 tons of pineapples.
An increase in interest in tropical cuisine shifts the demand curve as shown in the graph below.
b. Which of the following price and quantity combinations best describes the new equilibrium in the market for pineapples?
Price = $2.50 per pound; quantity = 24 tons
Price = $2.00 per pound; quantity = 22 tons
Price = $2.00 per pound; quantity = 20 tons
Price = $2.25 per pound; quantity = 22 tons
The market for bicycles in rural Indiana is described in the table below. Public spending improves bicycle lanes in rural areas. As a result, the demand for bicycles shifts to the right by 125 bicycles at every price.
a. The initial equilibrium price was $275 and the initial equilibrium quantity was 850 bicycles.
b. The new equilibrium price is $300 and the new equilibrium quantity is 925 bicycles.
c. Because of the increased number of bicycle lanes in rural Indiana, the equilibrium price of bicycles _____ and the equilibrium quantity of bicycles _____.
decreases by $25; decreases by 75 bicycles
increases by $25; increases by 75 bicycles
decreases by $25; increases by 75 bicycles
increases by $25; decreases by 75 bicycles
The monthly market for U.S. steel production (in millions of tons per month) is described in the table below. An increase in the price of iron ore, a critical input in the production of steel, shifts the supply curve to the left by decreasing supply by 200,000 tons at each price. (Hint: 200,000 tons = 0.2 million tons.)
a. Fill in the new supply schedule in the table in the "New Quantity of Steel Supplied" column.
b. The initial equilibrium price was $600 per ton and the initial equilibrium quantity was 1.6 million tons of steel.
c. The new equilibrium price is $610 per ton and the new equilibrium quantity is 1.5 million tons of steel.
A binding price ceiling for apartments (effective rent control) will:
increase the quantity supplied of rental housing
decrease the quantity demanded of rental housing.
create a qreater quantity supplied of rental housing to be made available to renters.
cause the quantity demanded to exceed the quantity supplied of rental housing.
The table below presents the average monthly demand and supply of 4' × 8' sheets of plywood from a typical home building supply store. In any month when coastal states such as Florida are threatened by hurricanes, the typical monthly demand for plywood increases by 600 sheets at every price. Imagine Florida passes a "price gouging" law that prevents home building supply stores from raising the price of plywood when hurricanes threaten.
a. When there are no hurricanes threatening Florida and without the "price gouging" law, the equilibrium price is $17 and the equilibrium quantity is 5000 sheets.
b. When hurricanes threaten Florida but without the "price gouging" law, the equilibrium price is $19 and the equilibrium quantity is 5400 sheets.
c. When hurricanes threaten Florida with the “price gouging” law in place, the price is $17, the quantity of plywood demanded is 5600 sheets, and the quantity of plywood supplied is 5000 in a month.
d. If the "price gouging" law goes into effect, the result of the law during hurricane season will be:
to create a shortage of 400 sheets of plywood.
to create a shortage of 600 sheets of plywood.
to create a surplus of 400 sheets of plywood.
to create a surplus of 600 sheets of plywood.
The market for packs of AA batteries during a typical week in Tulsa, Oklahoma is described in the table below.
a. During a typical week in Tulsa, Oklahoma in the market for packs of AA batteries, the equilibrium price would be $ and the equilibrium quantity would be packs.
In weeks when tornadoes threaten Tulsa, the demand for packs of AA batteries increases as shown in the table below.
Imagine that city leaders would like to prevent the price of packages of AA batteries from rising in weeks that tornadoes threaten Tulsa, Oklahoma. They impose a price ceiling of $14 for packages of AA batteries.
b. Assume the city does not impose the price ceiling during weeks that tornadoes threaten Tulsa, Oklahoma.
The equilibrium price in the market for packs of AA batteries will be $16 and the equilibrium quantity will be 150 packs.
c. Now assume the price ceiling has been imposed on the market for packs of AA batteries during weeks that tornadoes threaten Tulsa.
The quantity demanded with the price ceiling in effect will be 160 packs and the quantity supplied with the price ceiling in effect will be 125 packs.
d. This price ceiling of $14 per pack will not impact the AA battery market during a typical week.
e. As a result of the price ceiling:
quantity supplied exceeds quantity demanded by 35 packs of AA batteries in a week when tornadoes threaten Tulsa, Oklahoma.
quantity supplied equals quantity demanded for packs of AA batteries in a week when tornadoes threaten Tulsa, Oklahoma.
quantity demanded exceeds quantity supplied by 35 packs of AA batteries in a week when tornadoes threaten Tulsa, Oklahoma.
quantity supplied exceeds quantity demanded by 125 packs of AA batteries in a week when tornadoes threaten Tulsa, Oklahoma.
The U.S. Department of Agriculture guarantees dairy producers that they will receive at least $1.00 per pound of butter they supply to the market. Below is the current monthly demand and supply schedule for wholesale butter (in millions of pounds per month).
a. In the butter market, the monthly equilibrium quantity is 95 million pounds and the equilibrium price is $1.20 per pound.
b. What is the monthly surplus created in the wholesale butter market due to the price support (price floor) program?
79 million pounds
11 million pounds
Zero
22 million pounds
Suppose that a decrease in the cost of feeding cows shifts the supply schedule to the right by 40 million pounds at every price.
d. Given the new supply for butter, what is the monthly surplus of butter created by the price support program?
22 million pounds
Zero
29 million pounds
18 million pounds
The government taxes packs of cigarettes both to discourage smoking and to raise tax revenue. The average excise tax on a pack of cigarettes is $2.50 per pack. The table below presents the annual demand and supply schedules, in billions of packs, both before and after the tax on packs of cigarettes.
a. What is the equilibrium quantity and price per pack of cigarettes if there is no excise tax on cigarettes?
22.5 billion packs; $8.00 per pack
35 billion packs; $8.00 per pack
22.5 billion packs; $7.00 per pack
35 billion packs; $7.00 per pack
b. What is the equilibrium quantity and price per pack of cigarettes if there is a $2.50 excise tax per pack on cigarettes?
35 billion packs; $7.00 per pack
35 billion packs; $8.25 per pack
22.5 billion packs; $7.00 per pack
22.5 billion packs; $8.25 per pack
c. How much tax revenue does the $2.50 per pack excise tax on cigarettes generate each year?
None - no cigarettes will be purchased
$87.50 billion
$56.25 billion
$75.00 billion
d. By how many packs of cigarettes does quantity demanded decrease due to the excise tax on cigarettes?
25 billion packs per year
35 billion packs per year
22.5 billion packs per year
12.5 billion packs per year
e. By how much did the price paid by consumers change due to the tax on cigarettes?
$1.25 per pack
$7.00 per pack
$0.50 per pack
$2.50 per pack
The government imposes a $1.10 excise tax on the sale of every 2 liter bottle of soda. The tax is to be paid by the producers of soda. The figure below shows the annual market for 2 liter bottles of soda before and after the tax is imposed
a. Before the tax is imposed, the equilibrium price is $1.5 per bottle and the equilibrium quantity is 15 billion bottles.
b. After the excise tax is imposed, consumers pay a price of $2.4 per bottle.
c. After the excise tax is imposed, the price (amount) producers keep after the tax is paid is $1.3 per bottle.
d. After the tax is imposed, the equilibrium quantity is 12 billion bottles.
e. The government is able to collect $13.2 billion of tax revenue from the tax.
The table below presents the annual market for sofas in Akron, Ohio. Ohio imposes a $200 per unit excise tax on all sofas sold to be paid by customers at the point of sale.
a. The equilibrium price and quantity of sofas in Akron, Ohio before the excise tax is imposed are:
$1,000 and 210 sofas.
$1,200 and 280 sofas.
$1,120 and 250 sofas.
$1,180 and 250 sofas.
b. What is the new equilibrium price consumers pay (including the excise tax)?
$1,200
$1,120
$1,000
$800
c. What is the new equilibrium quantity of sofas sold in Akron, Ohio after the excise tax is imposed?
190 sofas
210 sofas
250 sofas
230 sofas
d. How much tax revenue does the excise tax on sofas raise per year in Akron, Ohio?
$42
$420
$4,200
$42,000
The graph represents the market for artichokes (in pounds per week) at a Midwest farmers' market. If the equilibrium price is $3 per pound and the equilibrium quantity is 100 pounds per week, what is the consumer surplus created for consumers of artichokes each week?
$300
The graph represents the weekly demand and supply for the game console market.
a. What is the equilibrium price and quantity?
Price: $ 250
Quantity: 60 game consoles
b. How much consumer surplus is generated each week?
Consumer surplus: $ 9,000
The graph represents the market for artichokes (in pounds per week) at a Midwest farmers' market. If the equilibrium price is $3 per pound and the equilibrium quantity is 100 pounds per week, what is the producer surplus created for suppliers of artichokes each week?
Producer surplus: $100
The graph represents the weekly demand and supply for the game console market.
a. What is the equilibrium price and quantity?
Price: $ 250
Quantity: 60 game consoles
b. How much producer surplus is generated each week
Producer surplus: $ 4500
The graph represents the market for artichokes (in pounds per week) at a Midwest farmers' market. If the equilibrium price is $3 per pound and the equilibrium quantity is 100 pounds per week, what is the economic surplus in the market for artichokes each week?
Economic surplus: $100
Shade in the deadweight loss associated with the price ceiling imposed on the market for packages of AA batteries and calculate the deadweight loss.
The value of the deadweight loss here is: $15
Elasticity
Generally, we calculate elasticity as the:
percentage change in price divided by the percentage change in quantity demanded/supplied.
change in quantity demanded/supplied divided by the change in price.
percentage change in quantity demanded/supplied divided by the change in price.
percentage change in quantity demanded/supplied divided by the percentage change in price.
Elasticity differs from slope as a measure of responsiveness to changes in prices because:
elasticity changes depending on the currency prices are measured in, but this does not affect slope.
percentage changes do not depend on the units of measurement, whereas slope does.
elasticity is only useful for describing demand, but slope is useful for describing demand and supply.
slope is always negative, while elasticity is not.
For which of the following products is demand likely to be the most inelastic?
Flat screen TV
Table salt
Sports car
In-ground hot tub
The demand for Gold Toe socks is likely to be more elastic than the demand for power tools because:
power tools in general have more substitutes than Gold Toe socks.
power tools in general are more expensive than Gold Toe socks.
Gold Toe socks have more substitutes than power tools in general.
Gold Toe socks are more expensive than power tools in general.
For which of the following products is demand likely to be the most elastic?
All gym shoes
All shoes
Converse All Star sneakers
All clothing items
If nicotine in cigarettes is highly addictive, why would it make economic sense for producers of cigarettes to offer free samples of their products to young adults?
The free samples will make demand more elastic in the long run.
The free samples will teach young adults there is such a thing as a free lunch.
The free samples will help get people addicted to nicotine, which makes demand less elastic.
The free samples will make supply less elastic so people know there will be cigarettes.
The passage of time increases the elasticity of demand for many goods because:
time allows people to earn more income.
time allows price to fluctuate so that consumers will get to pick the price they like.
time allows people to produce more of the goods.
time allows people to discover more substitutes for goods.
If a state decided to place a tax on home heating oil, over time:
demand would become less elastic and tax revenue would decline.
demand would become more elastic and tax revenue would decline.
demand would become more elastic and tax revenue would increase.
demand would become less elastic and tax revenue would increase.
Identify the item most likely to be a luxury good among the four mystery items:
Item A: price elasticity of demand = -2.3
Item B: price elasticity of demand = -1.0
Item C: price elasticity of demand = -0.8
Item D: price elasticity of demand = -0.2
The market supply curve is:
perfectly inelastic in the long run but not the short run.
perfectly elastic in the short run but not the long run.
less elastic in the long run than in the short run.
more elastic in the long run than in the short run.
Market Failures
If the producer of paper does not directly pay to dispose of the waste in the water, the price of paper will be below the socially efficient price and the amount of paper produced will be (Click to above the socially efficient amount.
Education benefits both students and the community. If students who purchase education consider only their own benefits when determining how much education to obtain, and schools consider only the cost of producing education when determining how much to supply, the social benefit is greater than the private benefit and the amount of education produced will be below the socially efficient amount.
Amanda keeps bees to produce honey. Each hive produces $300 worth of honey each month. The table below shows Amanda’s marginal cost of tending each bee hive and her private marginal benefit, which is equal to the market value of the honey each hive produces.
Which of the following goods is nonrival?
A pizza at a pizza parlor
A visit to the doctor at her office
A soccer match in a stadium
A tuna in the ocean
Which of the following goods is nonexcludable?
A pizza at a pizza parlor
A visit to the doctor at her office
A soccer match in a stadium
A tuna in the ocean
Which of the following goods is both nonrival and nonexcludable?
A hot dog at a hot dog stand
A soccer match in a stadium
A tuna in the ocean
The light from a lighthouse at a harbor entrance [Show Less]