# ECON104 Macroeconomics Analysis (Homework Ch 4)

ECON104 Macroeconomics Analysis (Homework Ch 4)
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## 1. Markets and competition

Identical products, as well as a large number of buyers and sellers, are characteristics of a ____ market. In such markets, sellers of goods ____ influence the prevailing market price, giving them the role of price ____ in the market.

True or False: The market for digital cable does not exhibit the two primary characteristics that define perfectly competitive markets.

• True
• False

## 2. Demand terminology

Complete the following table by selecting the term that matches each definition.

 Definition Quantity Demanded Demand Curve Demand Schedule Law of Demand A graphical object showing the relationship between the price of a good and the amount of the good that buyers are willing and able to purchase at various prices A table showing the relationship between the price of a good and the amount that buyers are willing and able to purchase at various prices The claim that, with other things being equal, the quantity demanded of a good falls when the price of that good rises The amount of a good that buyers are willing and able to purchase at a given price

Apply your understanding of the previous key terms by completing the following scenario with the appropriate terminology.

Your friend Juanita struggles with understanding graphs. She shows you the following illustration and asks for your help interpreting it:

Fortunately, you recognize that the line on this graph is ____. When your friend asks you which value represents the quantity of notebooks demanded at a price of \$8 per notebook, you tell her the correct answer: the value represented by the letter _____.

## 3. Individual and market demand

Suppose that Musashi and Rina are the only consumers of pizza slices in a particular market. The following table shows their weekly demand schedules:

 Price Musashi’s Quantity Demanded Rina’s Quantity Demanded (Dollars per slice) (Slices) (Slices) 1 8 12 2 5 8 3 3 6 4 1 4 5 0 2

On the following graph, plot Musashi’s demand for pizza slices using the green points (triangle symbol). Next, plot Rina’s demand for pizza slices using the purple points (diamond symbol). Finally, plot the market demand for pizza slices using the blue points (circle symbol).

Note: Line segments will automatically connect the points. Remember to plot from left to right.

## 4. Movements along versus shifts of demand curves

Consider the market demand for wine.

Complete the following table by indicating whether an event will cause a movement along the demand curve for wine or a shift of the demand curve for wine, holding all else constant.

 Event Movement Along Shift An increase in income of consumers An increase in the number of consumers An increase in the price of wine

## 5. Supply: Basic concepts

Complete the following table by selecting the term that matches each definition.

 Definition Quantity Supplied Supply Curve Supply Schedule Law of Supply A table showing the relationship between the price of a good and the amount of it that sellers are willing and able to supply at various prices The amount of a good that sellers are willing and able to supply at a given price The claim that, other things being equal, the quantity supplied of a good increases when the price of that good rises A graphical object showing the relationship between the price of a good and the amount that sellers are willing and able to supply at various prices

Apply your understanding of the previous key terms by completing the following scenario with the appropriate terminology.

Your coworker Sam is really concerned about a project that he has just been assigned. He is in charge of analyzing and determining conditions in the market for televisions from an extensive sales report.

If Sam’s boss is interested in a graphical presentation of the relationship between the price and quantity of televisions supplied, you would advise your coworker to construct ____ using the data provided. However, if Sam’s boss is more interested in the detailed numbers used to construct this visual representation, you would instead advise your coworker that a ____ would be more appropriate.

## 6. Individual and market supply

Suppose that Bob and Cho are the only suppliers of collectible action figures in a particular market. The following table shows their annual supply schedules:

 Price Bob’s Quantity Supplied Cho’s Quantity Supplied (Dollars per action figure) (Action figures) (Action figures) 2 0 6 4 8 12 6 12 16 8 14 20 10 16 22

On the following graph, plot Bob’s supply of collectible action figures using the green points (triangle symbol). Next, plot Cho’s supply of collectible action figures using the purple points (diamond symbol). Finally, plot the market supply of collectible action figures using the orange points (square symbol).

Note: Line segments will automatically connect the points. Remember to plot from left to right.

## 7. Movements along versus shifts of supply curves

Consider the market supply of hot dogs.

Complete the following table by indicating whether an event will cause a movement along the supply curve for hot dogs or a shift of the supply curve for hot dogs, holding all else constant.

 Event Movement Along Shift A change in technology that makes it more costly to produce hot dogs An increase in the price of hot dogs A change in expectations about the future price of hot dogs

## 8. Shifts in supply or demand I

The following graph shows the market for peanut butter in Dallas, where there are over 1,000 stores that sell peanut butter at any given moment. Suppose the municipal government, in an attempt to attract new residents, issues \$1,000 move-in vouchers to each new household that moves to Dallas. As a result, many new families move into the city.

Show the effect of this change on the market for peanut butter by shifting one or both of the curves on the following graph, holding all else constant.

Note: Select and drag one or both of the curves to the desired position. Curves will snap into position, so if you try to move a curve and it snaps back to its original position, just drag it a little farther.

Now suppose Congress passes a new tax that decreases the income of Dallas residents.

If peanut butter is a normal good, this will cause the demand for peanut butter to ____.

1. Shifts in supply or demand II

The following graph shows the market for pizzas in San Diego, where there are over 1,000 pizza restaurants at any given moment. Suppose the price of grated cheese, a major ingredient in pizzas, suddenly increases.

Show the effect of this change on the market for pizzas by shifting one or both of the curves on the following graph, holding all else constant.

Note: Select and drag one or both of the curves to the desired position. Curves will snap into position, so if you try to move a curve and it snaps back to its original position, just drag it a little farther.

1. Market equilibrium

The following table shows the annual demand and supply in the market for ice cream in New York City.

 Price Quantity Demanded Quantity Supplied (Dollars per gallon of ice cream) (Gallons of ice cream) (Gallons of ice cream) 4 2,000 200 8 1,600 600 12 1,200 800 16 800 1,200 20 400 1,800

On the following graph, plot the demand for ice cream using the blue point (circle symbol). Next, plot the supply of ice cream using the orange point (square symbol). Finally, use the black point (plus symbol) to indicate the equilibrium price and quantity in the market for ice cream.

Note: Plot your points in the order in which you would like them connected. Line segments will connect the points automatically.

1. Disequilibrium

Suppose the market for cars is unregulated. That is, car prices are free to adjust based on the forces of supply and demand.

If a shortage exists in the car market, then the current price must be ____ than the equilibrium price. For the market to reach equilibrium, you would expect ____.

1. Market equilibrium and disequilibrium

The following graph shows the monthly demand and supply curves in the market for hats.

Use the graph input tool to help you answer the following questions. You will not be graded on any changes you make to this graph.

Note: Once you enter a value in a white field, the graph and any corresponding amounts in each grey field will change accordingly.

The equilibrium price in this market is _____ per hat, and the equilibrium quantity is _____ hats bought and sold per month.

Complete the following table by indicating at each price whether there is a shortage or surplus in the market, the amount of that shortage or surplus, and whether this places upward or downward pressure on prices.

 Price Shortage or Surplus Shortage or Surplus Amount Pressure (Dollars per hat) (Hats) 40 60

## 13. How shifts in demand and supply affect equilibrium

Consider the market for pens. Suppose that the number of students with an allergy to pencil erasers increases, causing more students to switch from pencils to pens in school. Moreover, the price of ink, an important input in pen production, has increased considerably.

On the following graph, labeled Scenario 1, indicate the effect these two events have on the demand for and supply of pens.

Note: Select and drag one or both of the curves to the desired position. Curves will snap into position, so if you try to move a curve and it snaps back to its original position, just drag it a little farther.

Next, complete the following graph, labeled Scenario 2, by shifting the supply and demand curves in the same way that you did on the Scenario 1 graph.

Compare both the Scenario 1 and Scenario 2 graphs. Notice that after completing both graphs, you can now see a difference between them that wasn’t apparent before the shifts because each graph indicates different magnitudes for the supply and demand shifts in the market for pens.

Use the results of your answers on both the Scenario 1 and Scenario 2 graphs to complete the following table. Begin by indicating the overall change in the equilibrium price and quantity after the shift in demand or supply for each shift-magnitude scenario. Then, in the final column, indicate the resulting change in the equilibrium price and quantity when supply and demand shift in the direction you previously indicated on both graphs. If you cannot determine the answer without knowing the magnitude of the shifts, choose Cannot determine.

 Equilibrium Object Change in Equilibrium Objects Scenario 1 Scenario 2 When Shift Magnitudes Are Unknown Price Quantity

True or False: When both the demand and supply curves shift, you can always determine the effect on price and quantity without knowing the magnitude of the shifts. ]

True

False

## 14. A supply and demand puzzle

The following graph shows the market for pianos in 2009. Between 2009 and 2010, the equilibrium quantity of pianos remained constant, but the equilibrium price of pianos increased. From this, you can conclude that between 2009 and 2010, the supply of pianos _____ and the demand for pianos ______.

Adjust the graph to illustrate your answer by showing the positions of the supply and demand curves in 2010.

Note: Select and drag one or both of the curves to the desired position. Curves will snap into position, so if you try to move a curve and it snaps back to its original position, just drag it a little farther.

## 15. Another supply and demand puzzle

The market price of hamburgers in a college town decreased recently, and the students in an economics class are debating the cause of the price decrease. Some students suggest that the price decreased because a new type of grill allows restaurants to cook a hamburger in half the time. Other students attribute the decrease in the price of hamburgers to a recent increase in the price of french fries. Everyone agrees that the increase in the price of french fries was caused by a recent increase in the price of potatoes, which are not generally used in making hamburgers.

The first group of students thinks the decrease in the price of hamburgers is due to the fact that a new type of grill allows restaurants to cook a hamburger in half the time.

On the following graph, adjust the supply and demand curves to illustrate the first group’s explanation for the decrease in the price of hamburgers.

Note: Select and drag one or both of the curves to the desired position. Curves will snap into position, so if you try to move a curve and it snaps back to its original position, just drag it a little farther.

The second group of students attributes the decrease in the price of hamburgers to the increase in the price of french fries.

On the following graph, adjust the supply and demand curves to illustrate the second group’s explanation for the decrease in the price of hamburgers.

Suppose that both of the events you have just analyzed are partly responsible for the decrease in the price of hamburgers. Based on your analysis of the explanations offered by the two groups of students, how would you figure out which of the possible causes was the dominant cause of the decrease in the price of hamburgers?

If the equilibrium quantity of hamburgers decreases, then the supply shift in the market for hamburgers must have been larger than the demand shift.

Whichever change occurred first must have been the primary cause of the change in the price of hamburgers.

If the equilibrium quantity of hamburgers decreases, then the demand shift in the market for hamburgers must have been larger than the supply shift.

If the price decrease was large, then the supply shift in the market for hamburgers must have been larger than the demand shift.

## 16. How prices allocate resources

Suppose that there are three beachfront parcels of land available for sale in Huntington and six people who would each like to purchase one parcel. Assume that the parcels are essentially identical and that the minimum selling price of each is \$745,000. The following table states each person’s willingness and ability to purchase a parcel.

 Person Willingness and Ability to Purchase (Dollars) Amy 810,000 Carlos 770,000 Deborah 720,000 Felix 690,000 Janet 680,000 Van 900,000

Which of these people will buy one of the three beachfront parcels? Check all that apply.

Amy

Carlos

Deborah

Felix

Janet

Van

Assume that the three beachfront parcels are sold to the people that you indicated in the previous section. Suppose that a few days after the last of those beachfront parcels is sold, another essentially identical beachfront parcel becomes available for sale at a minimum price of \$732,500. This fourth parcel ___ be sold, because ____ will purchase it from the seller for at least the minimum price.

This set of mobile-enabled problems (powered by Aplia) covers the fundamental topics of supply and demand. Topics include the determinants of supply and demand, movements along versus shifts of these curves, as well as equilibrium determination of the market-clearing price and quantity.

 Questions Attempts Score Percent 1: Markets and competition 2 2 / 2 2: Demand terminology 2 2 / 2 3: Individual and market demand 1 1 / 1 4: Movements along versus shifts of demand curves 1 1 / 1 5: Supply: Basic concepts 2 2 / 2 6: Individual and market supply 1 1 / 1 7: Movements along versus shifts of supply curves 0.7 0.7 / 1 8: Shifts in supply or demand I 1 1 / 2 9: Shifts in supply or demand II 1 1 / 1 10: Market equilibrium 1 1 / 1 11: Disequilibrium 1 1 / 1 12: Market equilibrium and disequilibrium 1.7 1.7 / 2 13: How shifts in demand and supply affect equilibrium 4 4 / 4 14: A supply and demand puzzle 2 2 / 2 15: Another supply and demand puzzle 3 3 / 3 16: How prices allocate resources 2 2 / 2 TOTAL 26.3 / 28 ‡ 94 %

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