Handout Chapter 3: Demand, Supply, and Market Equilibrium TEXTBOO : !"EST#O$S %&,',3,(,),*,+,&&, -.OB/EMS %3,(,*, -.

OB/EM &: Consider the following information regarding the quantity of corn demanded and supplied per month, at different alternative prices. -ri0e per bu1hel %0ent1, (2 3) 32 ') '2 &) !uantity demanded 33222 (+222 )+222 4*222 *)222 +&222 !uantity 1upplied +3222 *+222 *(222 4*222 4'222 )3222

1. Determine the equilibrium price and quantity? 2. Describe the situation when the price is 4 cents per bushel, and predict what will happen. !. Describe the situation when the price is 1" cents per bushel, and predict what will happen. 4. #$plain what would happen if a serious transportation stri%e reduced corn output &at each price' by ! bushels. Determine the new equilibrium price and quantity. -.OB/EM ': Consider the following information regarding the quantity of pi((a demanded and supplied per month at different alternative prices. -ri0e %5 per pi66a, &2 + 4 ( ' 2 !uantity demanded 2 &2 '2 32 (2 &') !uantity 1upplied (2 32 '2 &2 2 2

1. Determine the equilibrium price and the equilibrium quantity.

2. )hat would occur if the price were set at *4 per pi((a? !. )hat would occur if the price were set at *+ per pi((a? 4. )hat would happen if the demand for pi((as tripled at each price? Determine the new equilibrium price and quantity. -.OB/EM 3: Dough Crust ,read is a normal good produced by Dough Crust ,a%ery. #$plain what would happen to the 1upply or demand 0ur7e, and to equilibrium pri0e and quantity of Dough Crust ,read in each of the following situations1. Due to a recession, households, which buy Dough Crust ,read, e$perience a decrease in income. 2. .he cost of wheat used in Dough Crust ,read increases significantly. !. Dough Crust buys improved ovens that reduce the costs of Dough Crust ,read. 4. /ovely /oaf, a rival, cuts the price of its bread. ". Consumers become health conscious and switch to low0calorie bread. 1. 2 widespread advertising campaign promoting the health benefit of Dough Crust consumption. -.OB/EM (: #$plain what would happen to the demand or the supply curve for oil in each of the following situations1. 2 fall in the price of oil. 2. 2 change in consumer preferences to natural gas consumption. !. 2 stri%e by oil refiners3 wor%ers.

4. 2n improved technology of oil production. ". 2 discovery of new oil fields in .e$as. 1. 2n increase in national income. 4. .he introduction of cars running on solar energy. +. 2n 56#C oil embargo. 7. 2 record brea%ing cold winter, raising the consumption of heating oil. 1 . 2n improvement in transportation, lowering the cost of imported oil.

-.OB/EM ): )hat effect will each of the following have on the demand for small automobiles such as the 8ini Cooper and 9mart car? 1. 9mall automobiles become more fashionable. 2. .he price of large automobiles rises &with the price of small autos remaining the same'. !. :ncome declines and small autos are an inferior good. 4. Consumers anticipate the price of small autos will greatly come down in the near future. ". .he price of gasoline substantially drops.

-.OB/EM 4: )hat effect will each of the following have on the supply of automobile tires? 1. 2 technological advance in the methods of producing tires. 2. 2 decline in the number of firms in the tire industry. !. 2n increase in the price of rubber used in the production of tires. 4. .he e$pectation that the equilibrium price of auto tires will be lower in the future than it is currently. ". .he levying of a per0unit ta$ in each auto tire sold. 1. .he granting of a " 0cent0per0unit subsidy for each auto tire produced.