Question

DEMAND. SUPPLY, AND MARKET EQUILIBRIUM KEY TERMS change in demand change in quantity demanded change in quantity supplied change in supply complements demand schedule excess demand (shortage) excess supply (surplus) individual demand curve Individual supply curve Inferior good law of demand law of supply market demand curve market equilibrium market supply curve minimum supply price normal good perfectly competitive market quantity demanded quantity supplied substitutes supply schedule EXERCISES All problems are assignable in MyEconLab The Demand Curve Describe and explain the law of demand, 1.1 Arrow up or down. According to the law of demand, an increase in price the quantity demanded. 1.2 From the following list, choose the variables that are held fixed in drawing a market demand curve: The price of the product • Consumer income • The price of other related goods • Consumer expectations about future prices • The quantity of the product purchased 1.3 From the following list, choose the variables that change as we draw a market demand curve: • The price of the product • Consumer income • The price of other related goods • Consumer expectations about future prices • The quantity of the product purchased 1.4 The market demand curve is the horizontal/vertical) sum of the individual demand curves. 1.5 A change in price causes movement along a demand curve and a change in 1.6 When several provinces in eastern Canada cut their cigarette taxes, the price of cigarettes decreased by roughly 50 percent, and the youth smoking rate increased by roughly (1, 17, 50, 90) per- cent. (Related to Application 1.) 1.7 Draw a Demand Curve. Your state has decided to offer its citizens vanity license plates for their cars and wants to predict how many vanity plates it will sell at different prices. The price of the state's regular license plates is S20 per year, and the state's per capita income is $30,000. A recent survey of other states with approximately the same population (3 million people) generated the following data on incomes, prices, and vanity plates: State B C D E Price of any parte $ 60 $ 55 s 50 $ 40 Price of regular plas 2 02035 20 Income 30.000 25,000 30.000 30,000 Quantity of vanity plates 6,000 8,000 16,000 16.000 a. Use the available data to identify some points on the demand curve for vanity plates and connect the points to draw a demand curve. Don't forget ceteris paribus. b. Suppose the demand curve is linear. If your state sets a price of $50, how many vanity plates would be purchased? 1.8 Youth Smoking. Use a demand and supply graph of the youth smoking market to show the effects of the tax cut in eastern Canada. Assume that the initial price is $6.00, the initial quantity is 100 units, and each youth smoker smokes five cigarettes per day. (Related to Application 1.) The Supply Curve Describe and explain the law of supply. 2.1 Arrow up or down: According to the law of supply, an increase in price the quantity supplied. 2.2 From the following list, choose the variables that are held fixed when drawing a market supply curve: • The price of the product • Wages paid to workers 88

Answer 1

1.1

Decreases (arrow Down)

When price increases, then there is a decrease in quantity demanded and vice versa.

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1.2

Consumer income

Price of other related goods

Consumer expectations

Above variables are considered as fixed, when market demand curve is created.

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1.3

Price of the product

Quantity of products purchased

Above are the two variables, used to create market demand curve.

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1.4

Correct Answer:

Horizontal

It is the horizontal sum of the individual demand curve.

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1.5

Quantity demanded

When price changes, then movement takes place along the demand curve.

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