October 6, 2012

GE273 HOMEWORK-WEEK-03]

[OSCAR DIEZ

ITT Technical Institute, Wilmington, MA

WEEK O3 ASSIGNMENTS
I.
Watch video in Myeconlab about "what drives the market". Write a summary
II.
Problems 4.12 on page 94, 4.15 on page 95, 3.6 on page 122, and 3.14 on page123.
=========================
I.

VIDEO SUMMARY

"What Drives the Market"

After I saw the video in "What Drives the Market" I can say that this video is about supply and demand and what rule those
economics main variables. Basically both speakers, (Susan k. Laury from Georgia University, and Robert Whapels form wake
forest university), agreed that supply is more about "the cost of making something" while Demand is more about " what people
want/needs and how much they are willing to pay for". Those two main variables are playing a higher important role on what
economics is about.
II.

Review Questions

CHAPTER 03 pages 94-95

4.12 Briefly explain whether each of the following statements is true or false.
a.

If the demand and supply for a product both increase, the equilibrium quantity of
the product must also increase.
TRUE. why? see equilibrium quantity definition and Marketing equilibrium page 78.

b.

If the demand and supply for a product both increase, the equilibrium price of the
product must also increase.
FALSO. why? demand could be highest that supply

c.

If the demand for a product decreases and the supply of the product increases, the
equilibrium price of the product may increase or decrease', depending on whether supply or demand has shifted more.
FALSE. Why? more offer& less demand. It means less price (Marketing equilibrium).

4.15 Following are four graphs and four market scenarios, each of which would cause either a movement along the supply curve
for Pepsi or a shift of the supply curve. Match each scenario with the appropriate graph to answer those question let said that
D1& D2 Pepsi

a. A decrease in the supply of Coke

Graph 01. the demand of Pepsi increase (transfer to the right). It looks like people are demanding more of this product. it
could be a consequence supply of coke decrease
b. A drop in the average household income in the United States from $44,000 to $43,000
Graph 04 Since it is not a primary food basket product, less income ends in less demand
c. An improvement in soft drink bottling technology
Graph 03. better technology more offers (more supply)
d. An increase in the prices of sugar and high-fructose corn syrup
Graph 02. less demand because price increase
CHAPTER 03:Where Prices Come From: The Interaction of Demand and Supply
CHAPTER
04: Economic Efficiency, Government Price Setting, and Taxes
Teacher: Mr.
McIntyre-(Microeconomics)
ITT Technical Institute, Wilmington, MA

October 6, 2012

GE273 HOMEWORK-WEEK-03]

[OSCAR DIEZ

ITT Technical Institute, Wilmington, MA

Problems and Applications

CHAPTER 04 pages 122-123

3.6

Use the information on the market in the table to

answer the following questions.
a. What are the equilibrium price and quantity?
How much revenue do kumquat producers
receive when the market is in equilibrium? Draw
a graph showing the market equilibrium and the
area representing the revenue received by
kumquat producers.

PRICE
$10
$15
$20
$25
$30
$35

Qd
120
110
100
90
80
70

Qs
20
60
100
140
180
220

$40
$35
$30
$25
Price

III.

$20

Demand

$15

Supply

$10
$5
$0
0

50

100

150

200

250

Quantity Millions per year

According to the graph equilibrium, price and quantity are $20 and 100 million/year respectively. The revenue received when
the market is 20x100,000,000 is equal =$2000,000,000/year
b.

Suppose the federal government decides to impose a price floor of $30 per crate. Now how many crates of kumquats will
consumers purchase? How much revenue will kumquat producers receive? Assume that the government does not
purchase any surplus kumquats. On your graph from question (a), show the price floor, the change in the quantity of
kumquats purchased, and the revenue received by kumquat producers after the price floor is imposed.
30x80,000,000 is equal =$2400,000,000/year

c.

Suppose the government imposes a price floor of $30 per crate and purchases any surplus kumquats from producers.
Now how much revenue will kumquat producers receive? How much will the government spend on purchasing surplus
kumquats? On your graph from question (a), show the area representing the amount the government spends to purchase
the surplus kumquats.

3.14 (Related to Solved Problem 4-3 on page 1 09) Use the

information on the market for apartments in Bay City in
the table below to answer the following questions.
a. In the absence of rent control, what is the equilibrium
rent, and what is the equilibrium quantity of apartments
rented? Draw a demand and supply graph of the market
for apartments to illustrate your answer. In equilibrium,
will there be any renters who are unable to find an
apartment to rent or any landlords who are unable to
find a renter for an apartment?

PRICE
$500
$600
$700
$800
$900
$1,000

Qd
375000
350000
325000
300000
275000
250000

Qs
225000
250000
275000
300000
325000
350000

Price

from the graphic/table

the revenue will kumquat producers receive= b (30x80,000000= 2400,000,000)+ 30x100,000,000=5400,000,000
$1,200
$1,000
$800
$600
$400
$200
$0

Demand
Supply
0

200000

400000

Quantity

According to the graph equilibrium price and quantity are $800 and 300,000 million/year respectively.
The revenue receive when the market is 800,x300,000 is equal =$240,000,000/year
b.

Suppose the government sets a ceiling on rents of 600 per month. What is the quantity of apartments demanded, and
what is the quantity of apartments supplied?
If the governments maximum rents price allowed is $600/month, the quantity demand (Qd) is 350,000 and quantity
supply is 250,000

CHAPTER 03:Where Prices Come From: The Interaction of Demand and Supply
CHAPTER
04: Economic Efficiency, Government Price Setting, and Taxes
Teacher: Mr.
McIntyre-(Microeconomics)
ITT Technical Institute, Wilmington, MA

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c.

Assume that all landlords abide by the law. Use a demand and supply graph to illustrate the impact of this price ceiling on
the market for apartments. Be sure to indicate on your graph each of the following: (i) the area representing consumer
surplus after the price ceiling has been imposed, (ij) the area representing producer surplus after the price ceiling has
been imposed, and (iii) the area representing the deadweight loss after the ceiling has been imposed.

PRICE

;t

Qs
225000

$600

Qd
375000
350000

250000

$700

325000

$800

300000

2750001
300000;

$900
$1,000

275000

$500

250000

'1
I

$1,200

1
I

$1,000

-1
l

$800
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u

'Q.:::

1
i

$600
~Demand

$400

32500q
35000q

200000

r--"'"'I
400000

Quantity

--------

---

Assume that the quantity of apartments supplied is the same as you determined in ( b). But now assume that landlords
ignore the law and rent this quantity of apartments for the highest rent they can get. Briefly explain what this rent will be.

If the quantity supply is 250,000 and the price grows to maximum, the renter will be willing to pay $1000/month

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ITT Technical Institute, Wilmington, MA

OL50
VOCABULARY
DEMAND AND SUPPLYCURVESare graphical representations of the reiationships between price and quantity.
EQUILIBRIUM QUANTITY: It is the amount bought when demand matches supply. When this happens, the items are sold at the equilibrium
price. Equilibrium quantity is simultaneously equal to both the quantity demanded and quantity supplied.
EQUILIBRIUM PRICEThe market price at which the supply of an item equals the quantity demanded.
CONSUMERSURPLUS;the difference between the highest price a consumer is willing to pay for a good or service and the price the
consumer actually pays
MARKET LAWS:

First, the demand curve (0) is negatively sloped--higher prices correspond with smaller quantities. This negative slope indicates the law of
demand.

Second, the supply curve (S) is positively sloped--higher prices correspond with large quantities. This positive slope indicates the law of
supply.

http://www.investorwords.com/1723/eguilibriumprice.html#ixzz28ZGvgnZC
http://www.amosweb.com/cgi-bin/awbnav.pl?s=wpd&c=dsp&k=eguilibrium+guantity
http://www.investorwords.com/6800/eguilibriumguantity.html#ixzz28ZlvC3iE

CHAPTER 03:Where Prices Come From: The Interaction of Demand and Supply
CHAPTER
04: Economic Efficiency, Government Price Setting, and Taxes
Teacher: Mr_
Mclntyre-(Microeconomics)
ITT Technical Institute, Wilmington, MA