Question

1. Draw a supply and demand graph for the market for air travel.  Analyze the impact of an increase in the cost of jet fuel.  Be sure to use just one graph, shifting either the demand curve or the supply curve the correct direction.  Show the impact on equilibrium price and equilibrium quantity.
2. Draw a supply and demand graph for new cars to show the impact of lower consumer incomes during the 2008-09 recession.
3. Analyze the impact of a decrease in tariffs (taxes) on imported flat screen televisions in the market for flat screen televisions.
4. In 2014, the Seattle Seahawks won the Super Bowl.  Draw a supply and demand graph for Seahawk tickets in the following season to show the impact of the Super Bowl win.  (It would be the same graph for Seahawks t-shirts or hotdogs and beer at the game.)
5. Suppose that (a) it is reported that coffee helps students retain information and (b) the cost of growing coffee beans increases. Draw a supply and demand graph to show the impact on price and quantity. What happens to price? What happens to quantity?  (Be careful with the quantity answer.)
6. What is a government price floor?  Who benefits from the floor?  Who pays the cost of the floor?
7. Given the equations for demand and supply below, solve for the equilibrium price P* and quantity Q*.  Show your work.  (The steps for solving supply and demand equations are shown at the end of Lecture 3 on supply and demand.)

                        Demand:   Q(d) = 1000 – 100P          

Supply:     Q(s) = 100 + 200P

8. Suppose that you are currently charging $10 for your product and selling 10,000 items.  Calculate your total revenue.  If you increase your price to $11, you estimate that you will sell 8,000 units.  Calculate your total revenue.  Calculate the price elasticity of demand.

Answer 1

(Question 1: Market for air travel)

Increase in cost of jet fuel will increase input cost, which will increase operations cost for airlines. So the airlines will decrease their supply (flights operated). Supply curve will shift leftward, which will increase flight (ticket) price and decrease the quantity (number of air travel).

In following graph, D0 & S0 are initial demand and supply curves for air travel, intersecting at point A with initial equilibrium price (of tickets) P0 and quantity (number of flights/air travel) Q0. As supply falls, S0 shifts leftward to S1, intersecting D0 at point B with higher price P1 and lower quantity Q1.

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NOTE: As per Answering Policy, 1st independent question is answered.