Econ 215 Supply and Demand and Market Equilibrium

Econ 215 Supply and Demand and Market Equilibrium
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Stout Honors Econ 215 – Homework #3

#1) Finding Market Equilibrium mathematically. Suppose that daily demand for donuts is given by the equation 𝑃 = 10 − 0.25𝑄𝑑 while the supply curve is given by

𝑃 = 0.5𝑄𝑠 + 1

  1. Calculate the equilibrium price and quantity algebraically. (ie: solve the equations)
  2. Draw the supply and demand curves and label the equilibrium price and quantity

#2) Changes in Equilibrium due to Shifts in Supply and Demand. To examine the market for Windows-based HP laptop computers, draw a downward sloping demand curve and an upward sloping supply curve (don’t worry about actual numbers, just draw a demand and supply curve). Show the equilibrium price and quantity as P* and Q* in a clearly labeled diagram.

For each part below, draw a new supply and demand diagram showing the original equilibrium and the new equilibrium following the described event. In each case, make sure your diagram shows the changes, if any, in (1) the supply curve, (2) the demand curve, and (3) the equilibrium price and quantity. Also explain in words what shifted, and why you shifted it the way you did.

  1. Windows 10 software prices drop
  2. Microchip prices rise (microchips are an input in computer manufacturing)
  3. A major bug is found in the Intel Core processor chip used in the HP laptops
  4. Apple cuts prices for Mac computers
  5. A new law requires all computers to be equipped with ergonomic keyboards, which are more expensive to produce than standard keyboards. Assume that consumers like ergonomic

**note, there is not necessarily one “right” answer to these…your answer may depend on your interpretation of the events, therefore make sure to explain your reasoning.

#3) How might the following shift the demand curve for flowers? For those things that WOULD shift the demand curve, in which direction would it shift? Explain.

  1. an increase in income
  2. A decrease in the price of chocolates (a substitute good)
  3. The approach of Valentine’s Day (when lots of flowers are given)
  4. A change in the price of flowers
  5. A popular celebrity campaigns for “plant’s rights” and argues that cutting down flowers is murder to the plant

#4) City as Prices / Prices as Text

This is your most important assignment for this homework: We are going to go out into the world and apply what we’re learning about value, supply, demand, and markets to the campus and city of Menomonie (or elsewhere if you want to use your spring break destinations).

Your job is to take some time over the next two weeks to observe the everyday world around you and think about how our campus and community are defined by prices and how these prices are explained (or not) by our values.

Try to venture off-campus into the city to answer at least some of these questions, although exploring them on campus as well is fine. If you’re shy about talking to people, you can do more of your analysis with observations but try to push yourself to ask people a few questions as well.

Places you might go: stores, restaurants, Menomonie Co-op, Goodwill or another thrift/second hand shop, a salon/barbershop, a dentist’s office, parks & trails, libraries, a farm, movie theaters, bowling alley, art shows and craft fairs (if you can find one), out on the lake (don’t fall through the ice!), even online … check out Craigslist or the campus for sale/for trade listings and see what people are buying and selling or giving away for free in town.

If you have access to a camera or camera-phone, take pictures to help illustrate your findings. We will be converting your writings into a set of blog posts and having pictures will help to spice it up. But, if you’re taking a picture inside a business, ask permission of the owners first if possible.

Possible questions to address: (don’t need to answer all of these – pick one or more appropriate ones for your example situation)

  1. Talk with a customer in a store or restaurant and ask them their views on the value of what they are purchasing. Do they feel like they are getting a good deal? A bad deal? What aspects of the product did they consider or find appealing when they chose to purchase it? Ask yourself these questions for something you’re
  2. Talk with a seller in a store or restaurant and ask them how they set their prices for things. What were their input costs? How much profit are they hoping to make on a given item or service? How do they choose what to put on the shelf and what not to? How much do they pay attention to what other competing businesses are doing?
  3. Think about the public spaces in the community (roads, parks, the lake, etc). Who (if anyone) pays for providing and maintaining these spaces? Who uses and values them? Is there a mismatch, and does this provide problems with them being either crowded and overused, or vacant and under-maintained? Ask someone you find in the space how they value it … would they still use the space if they had to pay to use it?
  4. What prices do you find in the community that match what you think things *should* cost? What things do you find that are either under- or over-priced in your mind? What factors seem to explain this?
  5. Is there still a “market” for things with a price of $0? When is $0 “worthless” and when is $0 “priceless”?
  6. We have thought a lot about value in the context of the labor that goes into something. What role does labor play in the role of prices and value in Menomonie? What sorts of jobs and salaries are available in town and why are some jobs readily available and others snapped up quickly? What do people put their labor effort and time into and is this labor reflected in the price of what they produce?

Combine your answers to one or more of these questions into a 3-5 page essay and upload it into D2L with any pictures you take. Reflect on what the prices you find have to say about our community and ourselves.

Be creative and have fun!

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