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Unformatted text preview: Problem Set #2 - Demand, Supply and Market Equilibrium (Chapter 3)
1. (18%) 4th-year students at University M are offering tutoring services in economics to 1st-year
students. The demand for and supply of these services are summarized in the following table:
16 Hours supplied per week
70 Hours demanded per week
40 A. (6%) Plot the demand & supply curves for tutorial services & show equilibrium price & quantity.
B. (4%) Suppose that toward the end of the semester the 4th-year students have to start search for
jobs, leaving them with less time to provide tutorial services to first year students. Indicate on the
same diagram how this might affect supply or demand. What happens to the equilibrium price and
quantity in the economics tutorial market?
C. (4%) Suppose the University administration decides that tutorial has become too expensive at the
end of the semester, and that the 1st-year students are being exploited. It implements a price
control so that any 4th-year student charging more than $10 per hour will be suspended. Indicate
this on a new graph and discuss how it affects the market for tutoring.
D. (4%) (Assume there is no price control now), the University now replaces its old professors with
new ones who give harder exams to first-year students. Indicate in a new diagram how this would
affect supply or demand . What happens to the equilibrium price and quantity in the economics
2. (8%) (Q3-1A, D) Illustrate the following with supply and demand curves:
A. With increased access to wireless technology and lighter weight, the demand for laptop
(notebook) computers has increased substantially. Laptops has also become easier and cheaper to
produce with new technology. Despite the shift of demand, prices have fallen.
B. Before economic reforms were implemented in the countries of Eastern Europe, regulation held
the price of bread substantially below equilibrium. When reforms were implemented, prices were
deregulated and the price of bread rose dramatically. As a result, the quantity of bread demanded
fell and the quantity of bread supplied rose sharply.
(Self-practice: answer available from end of book) (Q3-8) For each of the following, draw a diagram that illustrates the likely effect on the market for
eggs. Indicate in each case the impact on equilibrium price and equilibrium quantity.
A. A famous doctor warns that high-cholesterol foods cause heart attacks.
B. The price of bacon, a complementary product, decreases.
C. An increase in the price of chicken feed occurs.
D. Caesar salads become trendy at dinner parties. (The dressing is made with raw eggs.)
E. A technological innovation reduces egg breakage during packing.
3. (“Fish & braised black bean dace”) Due to scandals of food safety, as of Sept. 1 2007, Chinese
government has stepped-up inspections of food exports, raised fees, and enforces new licensing
procedures. Chinese food manufacturers have to file for licenses, and exporters have to obtain
certificates of approval from several government agencies. The extra inspection fees and
administrative delays, which boost storage costs, ……
Using a Demand and supply diagram, show how this policy affects the equilibrium price and
quantity of the can food exports.
(Self-practice: answer available from end of book) 4. (Q3-10A) Housing policy analysts debate the best way to increase the number of housing units
available to low-income households:
One strategy – the demand-side strategy – is to provide people with housing “vouchers”, paid for
by the government that can be used to rent housing supplied by the private market.
Another – a supply-side strategy – is to have the government subsidise housing suppliers or to
build public housing.
Illustrate supply- and demand-side strategies using supply and demand curves. Which results in
higher rents? ...
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This note was uploaded on 10/18/2010 for the course MACAU macau taught by Professor Macau during the Spring '10 term at University of Macau.
- Spring '10