How will this event impact the quantity demanded and price of generic soft drinks? • Coke and Pepsi launch an aggressive advertising campaign designed to persuade consumers that their branded products are superior to generic soft drinks. Holding everything else constant, how will this event impact the demand and price of generic soft drinks?
Review Problem #3 • Rapel Valley in Chile produces high quality wines at a fraction of the costs of many other vineyards around the world. It produces 20 million bottles of wine annually, 5 million are exported to the US. Strong La Nina weather patterns have caused unusually cold weather, devastating many of the wine producers in that region of Chile. - How will La Nina affect the price of Chilean wine? - Assuming that La Nina does not affect Californian wine producers, how will La Nina impact the market for Californian wines?
Review Problem #4 • Some have argued that higher cigarette prices do not deter smoking. They use the following argument: “The laws of supply and demand indicate that higher prices are ineffective in reducing smoking. Higher cigarette prices will reduce the demand for cigarettes. This reduction in demand will push the equilibrium price back down to its original level. Since the equilibrium price will remain unchanged, smokers will consume the same amount of cigarettes.” • Do you agree or disagree with this view? Explain
Review Problem #5 • In the market for cell phones, the following events occur, one at a time. Explain the influence of each event on the quantity demanded of cell phones and on the demand for cell phones. • The events are: • The price of a cell phone falls • The price of a call made from a cell phone falls • After a public outcry against the ringing of cell phones, cities and towns ban cell phones from public places • Incomes increase • Rumor has it that the price of a cell phone will rise next month • With the introduction of longer life batteries, cell phones become even more popular
Review Problem #6 • Timber beams are made from logs. In the market for timber beams, several events occur one at a time. Explain the influence of each event on the quantity supplied of timber beams and the supply of timber beams. • The wage rate of sawmill workers rise • The price of a timber beam rises • The price of a timber beam is expected to rise next year • Environmentalists convince Congress to introduce a new law that reduces the amount of forest that can be cut for timber products • A new technology lowers the cost of producing timber beams
Wrap-Up • Students should be able to: • Use the model of supply and demand to analyze market changes • Identify factors which cause shifts in the supply and demand curves • Differentiate between changes in a market which shift demand and supply curves versus those which cause movement along a curve • Identify the impacts of price ceilings and price floors on market demand
- Fall '10