Econ PS#2 Answers

Econ PS#2 Answers - Ch. 3 new ed, 4 old. Demand, Supply,...

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Ch. 3 new ed, 4 old. Demand, Supply, and Price 1. Supply and demand curve (see pp.78, 79) Equilibrium price and quantity Market equilibrium price: $3 Market equilibrium quantity: 140 slices If Price > $3 excess supply If Price < $3 excess demand 2. Shift in supply curve and its effects (see pp. 71, 77, 80, 83) - Interdependence of two markets (sugar and honey) - Substitution effect Price per Slice ($) 1 2 3 4 5 140 S D Honey D S’ S $ $ S D D’ # of slices Sugar
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An event in one market (sugar) affects another market (honey): A severe drought reducing supply of sugarcane crop increasing the cost of sugar production the supply curve of sugar shifts to the left sugar price goes up consumers tend to substitute honey for sugar (substitution effect) the demand curve of honey shifts to the right honey price goes up 3. Shift in supply curve and its effects (see pp. 71, 77, 80, 83) - Interdependence of two markets (coal and oil) - Substitution effect An event in one market (coal) affects another market (oil): Innovation in mining industry lowering the cost of mining (productivity improvement) the supply curve of coal shifts to the right the coal price falls consumers tend to substitute coal for oil (substitution effect) the demand curve of oil shifts to the left oil price falls 4. Shift in demand curve and its effects (see pp. 71, 80, 83)
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This note was uploaded on 04/29/2008 for the course H 200 taught by Professor Fleisher during the Spring '08 term at Ohio State.

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Econ PS#2 Answers - Ch. 3 new ed, 4 old. Demand, Supply,...

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