Question

Need help with 3, 4, and 5

Econ 206 Dr. George Problem Set #2 1) Consider the market for burritos (like Chipotle) a. Draw a supply and demand graph that shows the equilibrium price equal to $3.50 and the equilibrium quantity equal to 200 per day. Show the area of the graph that b. On the graph, show the effect when the price of pizza falls (assuming that pizza and c. On a new graph, show the effect when the wages paid to Chipotle's employees f d. represents consumer surplus and the area that represents producer surplus. chipotle are substitutes). What happens to the equilibrium price and quantity What happens to the equilibrium quantity and price? On another new graph, show the effect when the incomes of its customers increase What happens to the new equilibrium quantity and price? On another new graph, show the effect of an expected increase in the price of burritos over the next few weeks. What happens to the equilibrium price and quantity? e. 2) Pizzas and hamburgers are substitutes. Recently the equilibrium price of both has increased Can this be explained by a news report indicating that eating beef creates a health risk? Explain why or why not on a separate graph for each market (pizzas and hamburgers). Can the price change be explained by higher wages paid to workers in the pizza a. b. industry? Again, use two graphs in your answer. 3) The equilibrium price of laptop computers has declined over the past few years while the equilibrium quantity sold has decreased. Propose an explanation for this pattern. Show that you are correct using a supply and demand graph. 4) Show on a welllabeled graph what will happen in the market for college professors in the following scenario: A large demographic "bulge" ends, and the number of potential college students declines. At the same time, there is an increase in retirements of older college professors. Predict how each of the following economic changes will affect the equilibrium price and quantity in the financial market for home loans. Sketch a separate demand and supply diag for each to support your answers. 5) a. b. Because of a threat of a war, people become uncertain about their economic fut c. The overall level of saving in the economy diminishes. d. Banks that have made home loans find that a larger number of people than the The number of people at the most common ages for home-buying increases. expected are not repaying those loans.

Answer 1

(3)

When there is a decrease in demand, the demand curve shifts leftward, which reduces both equilibrium price and equilibrium quantity sold. In following graph, D0 & S0 are initial demand and supply curves intersecting at point A with initial price P0 and quantity Q0. As demand falls, D0 shifts left to D1, intersecting S0 at point B with lower price P1 and lower quantity Q1.

(4)

Lower student enrollment will decrease the demand for professors, shifting the demand curve leftward, decreasing both price (salary) and quantity (number of professors). Higher retirement will decrease the supply for professors, shifting the supply curve leftward, increasing price (salary) and decreasing quantity (number of professors). The net effect is a definite decrease in quantity (number of professors), but net effect on price (salary) is uncertain. Price may rise, fall or remain unchanged on basis of whether leftward shift in demand curve is lower, higher or equal to the leftward shift in supply curve.

In following graph, D0 & S0 are initial demand and supply curves intersecting at point A with initial price P0 and quantity Q0. As demand falls, D0 shifts left to D1, and as supply falls, S0 shifts left to S1, intersecting D1 at point B. Quantity falls to Q1, but price is uncertain. In graph, by drawing new price P1 is higher than P0.

NOTE: As per Answering Policy, 1st 2 questions are answered.