Question 10

10. Market equilibrium The following table presents the weekly demand and supply in the market for laundry detergent in Miami. Price Quantity Demanded Quantity Supplied (Dollars per gallon of laundry detergent) (Gallons of laundry detergent) (Gallons of laundry detergent) 2,000 200 1,600 600 CO 12 1,200 800 16 800 1,200 20 400 1,800 On the following graph, plot the demand for laundry detergent using the blue point (circle symbol). Next, plot the supply of laundry detergent using the orange point (square symbol). Finally, use the black point (plus symbol) to indicate the equilibrium price and quantity in the market for laundry detergent. Note: Plot your points in the order in which you would like them connected. Line segments will connect the points automatically, 24 20 Demand 16 SUPPLY PRICE ( Dollars per gallon of laundry detergent) Equilibrium 400 1200 1600 2000 2400 QUANTITY (Gallons of laundry detergent)15. Another supply and demand puzzle Suppose the market price of calzones in a university town recently increased. Economics students studying at the university are discussing potential causes of the price increase, One group of students theorize that the price increased because several pizza parlors in the area have recently gone out of business. Others claim the increase in the price of calzones is because of a recent decrease in the price of beer. Everyone agrees that the decrease in the price of beer was caused by a recent decrease in the price of hops, which are not generally used in making calzones. The first group of students claim the increase in the price of calzones buted to the fact that several pizza parlors in the area have recently gone out of business. On the following graph, adjust the supply and demand curves to illustrate the first group's explanation for the increase in the price of calzones. 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, ? Supply Demand PRICE (Dollars per calzone) Demand QUANTITY (Calzones) The second group of students attributes the increase in the price of calzones to the decrease in the price of beer.The second group of students attributes the increase in the price of calzones to the decrease in the price of beer. On the following graph, adjust the supply and demand curves to illustrate the second group's explanation for the increase in the price of calzones. O Supply Demand Supply PRICE (Dollars per calzone) Demand QUANTITY (Calzones) Suppose that both groups of students are on the right track, and each of the events described above are partially responsible for the increase in the price of calzones, Based on your analysis of the explanations offered by the two groups of students, how would you determine which of the possible causes was the dominant cause of the increase in the price of calzones? Whichever change occurred first must have been the primary cause of the change in the price of calzones. If the equilibrium quantity of calzones decreases, then the supply shift in the market for calzones must have been larger than the demand shift. If the equilibrium quantity of calzones decreases, then the demand shift in the market for calzones must have been larger than the supply shift. If the price increase was small, then the supply shift in the market for calzones must have been larger than the demand shift.13. How shifts in demand and supply affect equilibrium Consider the market for pens. Suppose that the number of students who are allergic to the rubber used in pencil erasers increases, leading more students to switch from pencils to pens in school. Further, the price of plastic, a major input in the pen production process, has dropped sharply. 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. Scenario 1 10 Supply PRICE (Dollars per pen) Demand QUANTITY ( Millions of pens)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 (? Scenario 2 SUPPLI Demand Suppli PRICE (Dollars per pon) Demand 5 QUANTITY ( Millions of pens) 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 Change in Equilibrium Objects Equilibrium Object 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 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 O False