Problem_Set_3_Answers

Problem_Set_3_Answers - 72 CHAPTER 3. DEMAND AND SUPPLY...

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Unformatted text preview: 72 CHAPTER 3. DEMAND AND SUPPLY Answers to Problems on Supply and Demand. Answer to Problem 3.1. When the price of fresh fish rises in the local supermarket, the quantity of fresh fish sold decreases. Is this a decrease in the quantity demanded of fresh fish or is it a decrease in the demand for fresh fish? Answer. A change in a commoditys own price cannot shift the commoditys market demand curve. Therefore the effect of an increase in the price of fresh fish is a decrease in the quantity demanded of fresh fish (a movement along the market demand curve for fresh fish). Answer to Problem 3.2. When the price of sneakers rises the quantity of sneakers produced increases. Is this an increase in the quantity supplied of sneakers or is it an increase in the supply of sneakers? Answer. A change in a commoditys own price cannot shift the commoditys market supply curve. Therefore the effect of an increase in the price of sneakers is an increase in the quantity supplied of sneakers (a movement along the market supply curve for fresh fish). Answer to Problem 3.3. What is the meaning of the statement that In a compet- itive market for a commodity the market price adjusts so that the market clears.? Answer. The phrase the market clears means that the total quantity demanded of the commodity and total quantity supplied of the commodity are equal; i.e. there is neither an excess quantity demanded for, nor an excess quantity supplied of the commodity. If the market does not clear then there must be either an excess quantity demanded for, or an excess quantity supplied of the commodity traded in the market. If there is an excess quantity demanded of the commodity at the current market price then the price will rise, thereby reducing the quantity demanded, increasing the quantity supplied and so reducing the excess quantity demanded. If there is an excess quantity supplied of the commodity at the current market price then the price will fall, thereby increasing the quantity demanded, reducing the quantity supplied and so reducing the excess quantity supplied. Only when there is neither an excess quantity demanded nor an excess quantity supplied will the market price no longer change. This is when total quantity demanded and total quantity supplied are equal. Answer to Problem 3.4. Suppose that the market demand and market supply curves for fresh fish have the equations Q D = 60- 5 p tons and Q S = 10 p tons. p , measured in dollars per ton of fresh fish, is the price of fresh fish. Q D , measured in tons, is the quantity demanded of fresh fish. Q S , measured in tons, is the quantity supplied of fresh fish. (i) On a graph with the per unit price p measured on the vertical axis and the quantities demanded and supplied, Q D and Q S , measured on the horizontal axis, 73 draw both the demand curve and the supply curve for the fresh fish market. Clearly label both axes....
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This note was uploaded on 03/01/2011 for the course ECO 182 taught by Professor Morgan during the Spring '08 term at SUNY Buffalo.

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Problem_Set_3_Answers - 72 CHAPTER 3. DEMAND AND SUPPLY...

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