SUMMER 2010 Macro HW_3 student version

SUMMER 2010 Macro HW_3 student version - micro/hw 3 First...

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micro/ hw 3 First Name Anna Last Name Mbamalu Hand in pages 1-2 and your graph staples together. Chapter 3 1) Suppose the total demand for wheat and the total supply of wheat per month in the Kansas City grain market are as follows: Thousands of bushels demanded Price per bushel Thousand of bushels supplied Surplus (+) or shortage (-) 85 80 75 70 65 60 $3.40 3.70 4.00 4.30 4.60 4.90 72 73 75 77 79 81 -13 -12 0 +7 +14 +21 a. What is the equilibrium price? $4.00 What is the equilibrium quantity? 75 Fill in the surplus-shortage column with amounts and signs (+/-). b. Graph the demand for wheat and the supply of wheat. Be sure to label the axes of your graph correctly. Label equilibrium price P and equilibrium quantity Q . Staple your graph to this page. c. Why will $3.40 not be the equilibrium price in this market? $3.40 will not be the equilibrium price in this market because the demand is greater than the supplied creating a shortage of 13. To have equilibrium, the amount demanded and the amount supplied has to be the same making the shortage or the surplus equal zero. Why not $4.90? It will not be at equilibrium at $4.90 either because there are more amounts supplied than demanded creating a surplus of 21. To have equilibrium, the amount demanded and the amount supplied has to be the same making the shortage or the surplus equal zero. “Surpluses drive prices up; shortages drive them down.” Do you agree? No, because when there is a shortage of something the demand for that good will increase thus causing the price to increase, but if there is a surplus the demand lowers causing the price to drop. d. Suppose government establishes a price ceiling of $3.70 for wheat. What might prompt it to establish this price ceiling? Demonstrate your answer graphically on your graph. e. Suppose government establishes a price floor of $4.60 for wheat. What will be the main effects of this price floor? Demonstrate your answer graphically on your graph. The main effect would be a surplus of 14 because the amount supplied exceeds the amount demanded. 2)
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SUMMER 2010 Macro HW_3 student version - micro/hw 3 First...

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