Question

Supply and Demand Data for Ice Cream (one gallon containers)

Price      QD          QS          QD1

$2.00     700         300         ____

$2.50     600         400         ____

$3.00     500         500         ____

$3.50     400         600         ____

$4.00     300         700         ____

$4.50     200         800         ____

Graph the data in the blank space above. Make sure to label P, Q, S, D, and E

What is the Equilibrium Price and Quantity? _________________________________

At a price of $2.00, there will be a ______________ of _______________.

At a price of $4.00, there will be a ______________ of _______________.

Now suppose the price per gallon of frozen yogurt (a substitute good) increases resulting in an increase in the quantity demanded for ice cream by 200 gallons at each given price. Write the new values of the QD at each given price in the QD1 column above. Now graph the new QD values for the new Demand Curve. Make sure to label D1 and E1

What is the new Equilibrium Price and Quantity? __________________________________

In what direction did the demand shift?   ______________________________

Is this referred to as an increase or decrease in demand? ________________________________

In the space below, define Nominal GDP and Real GDP. Which one is the better measure of GDP and why?

Answer 1

What is the Equilibrium Price and Quantity? $3.00, 500 ( where D=S

At a price of $2.00, there will be a shortage of 400 (QD-QS= 700-300=400). Excess quantity demanded over quantity supplied.

At a price of $4.00, there will be a excess of 400 (QS-QD=700 -300=400) Excess quantity supplied over quantity demanded.

What is the new Equilibrium Price and Quantity? $3.50, 600 ( D1=S).

In what direction did the demand shift? Right.

Is this referred to as an increase or decrease in demand? Increase in demand as the curve shifted towards right.

Nominal GDP is the value of prices in the current period and quantity in the current period. Real GDP is the value of current year quantity and base year prices. Real GDP is a better measure as it takes into account inflation.

Price ($)	QD	QS	QD1
2.00	700	300	900
2.50	600	400	800
3.00	500	500	700
3.50	400	600	600
4.00	300	700	500
4.50	200	800	400