Self Check Questions -

• 4- Many changes are affecting the market for oil. Predict how each of the following events will affect the equilibrium price and quantity in the market for oil. In each case, state how the event will affect the supply and demand diagram. Create a sketch of the diagram if necessary.
  • a. Cars are becoming more fuel efficient, and therefore get more miles to the gallon.
  • b. The winter is exceptionally cold.
  • c. A major discovery of new oil is made off the coast of Norway.
  • d. The economies of some major oil-using nations, like Japan, slow down.
  • e. A war in the Middle East disrupts oil-pumping schedules.
  • f. Landlords install additional insulation in buildings.
  • g. The price of solar energy falls dramatically.
  • h. Chemical companies invent a new, popular kind of plastic made from oil.
• 6- A tariff is a tax on imported goods. Suppose the U.S. government cuts the tariff on imported flat screen televisions. Using the four-step analysis, how do you think the tariff reduction will affect the equilibrium price and quantity of flat screen TVs?
• 8- Does a price ceiling change the equilibrium price?
• 9- What would be the impact of imposing a price floor below the equilibrium price?

Critical Thinking Questions -

• 41- We know that a change in the price of a product causes a movement along the demand curve. Suppose consumers believe that prices will be rising in the future. How will that affect demand for the product in the present? Can you show this graphically?
• 43- se the four-step process to analyze the impact of the advent of the iPod (or other portable digital music players) on the equilibrium price and quantity of the Sony Walkman (or other portable audio cassette players).
• 46- Most government policy decisions have winners and losers. What are the effects of raising the minimum wage? It is more complex than simply producers lose and workers gain. Who are the winners and who are the losers, and what exactly do they win and lose? To what extent does the policy change achieve its goals?

Problem -

• 54- The computer market in recent years has seen many more computers sell at much lower prices. What shift in demand or supply is most likely to explain this outcome? Sketch a demand and supply diagram and explain your reasoning for each.
  • a. A rise in demand
  • b. A fall in demand
  • c. A rise in supply
  • d. A fall in supply
• 57- A low-income country decides to set a price ceiling on bread so it can make sure that bread is affordable to the poor. The conditions of demand and supply are given in Table 3.11.
• What are the equilibrium price and equilibrium quantity before the price ceiling? What will the excess demand or the shortage (that is, quantity demanded minus quantity supplied) be if the price ceiling is set at $2.40? At $2.00? At $3.60?

Price Qd Qs $1.60 9,000 5,000 $2.00 8,500 5,500 $2.40 8,000 6,400 $2.80 7,500 7,500 $3.20 7,000 9,000 $3.60 6,500 11,000 $4.00 6,000 15,000Points P Q A 60 3,000 B 70 2,800 C 80 2,600 D 90 2,400 E 100 2,200 F 110 2,000 G 120 1,800 H 130 1,600