Question

In: Economics

Use demand-supply analysis – with appropriately drawn graphs – to briefly explain the effects (i.e., increase...

Use demand-supply analysis – with appropriately drawn graphs – to briefly explain the effects (i.e., increase or decrease) on the equilibrium price and quantity from the following:

In the past, the success of “young” Tiger Woods influenced many young people to become interested in learning to play golf. What was the effect on the equilibrium price and quantity of golf clubs?

The price of pencils increase and at the same time, the price of ink used in the construction of ballpoint pens decreases.   What is the effect on the equilibrium price and quantity of ball point pens?

Consider the market for taxi service in Washington, DC. Use demand-supply analysis to explain the effects (i.e., increase or decrease) on the equilibrium price and quantity from the following (considers each case separately; and assumes that only one side of the market is affected.):

Bus drives go on strike.

Bus fares increase after a strike by bus drives.

Taxi drivers must pass a competency test, and a third of all drivers fail.

Gasoline prices increase

Half of the downtown parking lots are converted to office building.

The population of the city increases.

A demand curve is drawn holding “all other things constant.” What does “ceteris paribus mean, and why is it important to a correct interpretation of the law of demand?

[Complete question 4-6 only if we have covered Elasticity]

Suppose the demand curve for cantaloupes [Complete only if we have covered Elasticity]

P = 120 – 3Qd

Where P is the price per pound (in cents) of a cantaloupe and Qd is the quantity demanded per year (in millions of pounds). Suppose the supply curve for cantaloupes is

P = 5Qs

Where P is the price per pound (in cents) of a cantaloupe and Qs is the quantity supplied per year (in millions of pounds).

What is the equilibrium price per pound of cantaloupe? What is the equilibrium quantity of cantaloupe produced? Graph each curve.

Using the midpoint formula and the demand curve described in problem 4, calculate the price elasticity of demand for the line segment Q=15 to Q=16.

Using the revenue test and the demand curve described in problem 4, determine whether the line segment (q=14 to q=15) is in the elastic or inelastic portion of the demand curve.

Solutions

Expert Solution

1) In the past, the success of “young” Tiger Woods influenced many young people to become interested in learning to play golf. What was the effect on the equilibrium price and quantity of golf clubs?

The number of consumers have increases. This is increase in the demand determinant. The demand curve will shift to the left as the demand for golf clubs increase. The equilibrium price and quantity will increase.

2) The price of pencils increase and at the same time, the price of ink used in the construction of ballpoint pens decreases.   What is the effect on the equilibrium price and quantity of ball point pens?

Pencils and ball point pens are substitutes. There is a change in both quantity demanded and quantity supplied of ball point pents. Pencil, which is a related good, has become costlier. The demand for ball point pens will increase.This is an example of a change in the price of related goods which is a demand determinant. The equilbrium price and quantity of ball point pens will increase.

Consider the market for taxi service in Washington, DC. Use demand-supply analysis to explain the effects (i.e., increase or decrease) on the equilibrium price and quantity from the following (considers each case separately; and assumes that only one side of the market is affected.):

Bus drives go on strike. Increase in the demand for taxis

Bus fares increase after a strike by bus drives. Increase in the demand for taxis.

Taxi drivers must pass a competency test, and a third of all drivers fail. Quantity supplied of taxis will decrease.

Gasoline prices increase. Quantity supplied will decrease.

Half of the downtown parking lots are converted to office building.

The population of the city increases.


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