INTRO ECON / SPRING 2020

HOMEWORK #2

SUPPLY & DEMAND EXERCISES

Consider each of the markets below separately and use supply and demand analysis to correctly respond to the questions below.

1. Using the table below, graph the market for wheat and identify the equilibrium price and quantity. Clearly identify where surpluses or shortages would occur.
2. What is the equilibrium price? At what price is there neither a shortage nor a surplus? Fill in the surplus-shortage column and use it to confirm your answers.
3. How big is the surplus or shortage at $3.40? At $4.90? How big a surplus or shortage results if the price is 60 cents higher than the equilibrium price? 30 cents lower than the equilibrium price?

2. Use two market diagrams to explain how an increase in state subsidies to public colleges might affect tuition and enrollments in both public and private colleges.

3. SUPPLY & DEMAND ANALYSIS

For each of the scenarios below, provide a completely (correctly) labeled market model showing the impact on equilibrium price and quantity (if any). Make sure to use directional arrows and clearly report your results.

19. HAND SANITIZER: There is a global pandemic and consumers are worried about contracting Covid-19.
20. SOCCER CLEATS: As a result of Covid-19, many spring soccer leagues were canceled.
21. GASOLINE: Some states have increased taxes on the production of gasoline.
22. CHERRIES: Because of Covid-19, the migrant workers from Mexico who usually help harvest Washington’s cherries are unable to gain access to the US.
23. HOT TUBS: Because of the fiscal stimulus payments, many households have more income.
24. ATHLETIC WEAR: Firms producing leisure / athletic wear decide to increase their prices.
25. ONLINE FITNESS CLASSES: Because many physical trainers can no longer train in their local gyms, they have started offering classes online. You can assume that there was already a market for online fitness training prior to this.
26. HOT DOGS: Assume that hot dogs are an inferior good. What would happen if incomes fell?

4. DOUBLE-SHIFTS
5. Using a completely and correctly labeled market model, clearly show what would happen in the market for Monopoly Board Games if more people became quarantined and at the same time, the factory producing the game had to cut back on workers to be in compliance with social distancing directives. If a variable (price or quantity) is indeterminate, make sure to clearly show and state that.
6. Using a completely and correctly labeled market model, clearly show what would happen in the market for grapes if the price of strawberries (a substitute) decreased and at the same time, there was a blight destroying a large amount of crops. If a variable (price or quantity) is indeterminate, make sure to clearly show and state that.

5. THINKING BACKWARDS
6. Suppose that we see that the price of hamburger has fallen and the stores are selling more hamburger than ever. Use a market model to show ONE EVENT (not a double shift) that might have caused this. Take a guess at something specific that would have caused the shift you have shown in your market model.
7. Suppose that we see that the price of baseball bats has increased and the stores are selling more baseball bats than ever. Use a market model to show ONE EVENT (not a double shift) that might have caused this. Take a guess at something specific that would have caused the shift you have shown in your market model.