Question 16 of 28 ch 3 hw question 8 clicked

Question 16 of 28 - Ch. 3 HW
Question 8 Clicked
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Assignment Score:
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  Question 16 of 28
Suppose the accompanying graph depicts a market for one pound bags of candy. Place the line
labeled Excess Demand at a price that would generate an excess demand (shortage). Then,
determine the size of the excess demand.
Market for CandyPrice per bagQuantity (millions of bags)
012345678910012345678910DS
Excess Demand
Excess Demand =
million bags
Solution
Excess demand occurs when the quantity demanded is greater than the quantity supplied. At the
equilibrium price, quantity demanded is equal to quantity supplied. Therefore, excess demand
only exists when the price is less than the equilibrium price. When price is above equilibrium,
quantity supplied is greater than quantity demanded, resulting in excess supply, or a surplus.
Graphically, equilibrium occurs at the intersection of the supply and demand curves. For this
problem, the supply and demand curves intersect at a price of $5. Of the three possible locations
for the excess demand line, $3 is the only one below the equilibrium.
To calculate the size of the excess demand, find the difference between quantity demanded and
quantity supplied at $3. At $3, quantity demanded is 7 million bags and quantity supplied is 3
million bags. There are 4 million more bags demanded than supplied. Therefore, the excess
demand is 4 million bags.
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Question 17 of 28 - Ch. 3 HW
Question 8 Clicked
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  Question 17 of 28
Classify each scenario based on whether it will lead to upward or downward pressure on the
equilibrium price of the good marked in bold.
Upward pressure on priceDownward pressure on price
Answer Bank
Solution
Prices adjust to changes in the market. Shifts in both supply and demand for a product affect
prices. For example, the extra silt in Egypt leads to an abundance of cotton. This increased
supply puts downward pressure on the price of cotton. Fears concerning a nuclear holocaust lead
to an increased demand for twonkies, putting upward pressure on the price of twonkies. Bad
weather in the case of the Super Bowl and fears about mad cow disease reduce demand and put
downward pressure on the prices of tickets and beef, respectively.