Assignment 3: Supply, Demand, & Government in the Markets

A doctoral student has just completed a study for her dissertation and found the following
demand and supply schedules for hand held computers to be as follows:
Price/Computer

Quantity
Demanded

Quantity
Supplied

$200

1000

2200

175

1250

2050

150

1500

1900

125

1750

1750

100

2000

1600

75

2250

1450

50

2500

1300

25

2750

1150

Questions:
1. Using Microsoft Excel, draw a graph illustrating the supply and demand in this market.
2. What is the equilibrium Price and Quantity in the market?
3. Now suppose the government imposes a special tax on these computers. Describe what
would happen in this market in terms of the supply and demand curve.
4. Disregard the new tax in part three. Now assume that the government imposes a price
ceiling of $100 in this market, as a result of protests of price gouging by the sellers. What
would happen to the price and quantity in this market?
5. Disregard the events of part four. Assume that the manufacturers of this product lobby
the governments lawmakers, in terms of this product being an essential for college
students but they are considering halting production due to the lack of profits. The
lawmakers agree and now set a price floor at $150. What would happen in this market?
6. If consumers expectations were such that they were concerned about the economy and
jobs, what would you think would happen in this market?
Compose your solutions to this assignment in a report as a MS Word document.
This assignment requires you to create a chart in Microsoft Excel. In order to accomplish that, you will need to enter
the data in an Excel worksheet, and then use Excel to graph the data. Copy the graph from your Excel worksheet and
paste it into your MS Word document along with any explanations or discussion, in-text citations if required, and
responses to the list of the questions asked in this assignment.
DO NOT UPLOAD THE EXCEL WORKSHEET TO THE DROPBOX. The chart you create in Excel must be
copied and pasted into a Word document.

To review tutorials about using Microsoft Excel, please click on the tutorial link at the top of this
page.

By Wednesday, August 6, 2014 deliver your assignment to the M1: Assignment 3 Dropbox.
Create the file with the following name: LastnameFirstInitial_M1A3.Excel.xls.
Maximum
Points

Assignment 3 Grading Criteria

Correctly constructed the supply and demand graph.

Answered questions 2-5 correctly, 15 points each.
Answered question 6 correctly.
Wrote in a clear, concise, and organized manner;
demonstrated ethical scholarship in accurate representation
and attribution of sources; displayed accurate spelling,
grammar, and punctuation.

12
60
8
20
100

Total:

I.

Supply and Demand Graph

Price/Computer

Demand curve
$225
$200
$175
$150
$125
$100
$75
$50
$25
$0

Supply curve

Equilibrium

Equilibrium

250

500

750 1000 1250 1500 1750 2000 2250 2500 2750 3000

Quantity

II. The Equilibrium price is at $125/computer and the Equilibrium quantity sold/bought is at 1,750.
III. If the government imposes a special tax on the computer, computer prices will go up and with that
increase according to the law of demand, demand will go down and there will be excess supply. The tax
increases the cost of production hence profit declines thus suppliers will reduce supply. The new price
will remain while the extra supply is being consumed at a slower rate and this will in turn tell the
suppliers to slow down production of computers or bring less computers to the market. The going down
of supply will support the new price but if the demand continues to go down or stays down despite the
going down of supply, the new price will not be supported and there will be a pressure for the price to

go down to reach equilibrium. The demand curve will shift to the left and down to reflect the quantity
demanded at the new higher price is much lower. The supply curve in this instance will initially stay the
same then eventually shift left and down to seek equilibrium.
IV. If the government imposes a price ceiling of $100 to this market and since $125 was the equilibrium
price, the computer then will be perceived to be a bargain and demand will increase, this heavy demand
will consume the available stock in the market much faster than before and will prompt the supplier to
produce more but if the cost of producing will render producing not profitable, suppliers might opt to
limit production hence supply will go down. This should trigger an increase in price but if the price
ceiling is still imposed then there would be no price adjustment. The demand will continue to be strong
but because of the intervention prices will remain the same and supply will remain down to a point that
there might be scarcity in the market or supply will be critically be low.
V. Setting a price floor of $150 in this market where we know $125 is the equilibrium price would make
the goods expensive. The increase in price from before would deter the buyers hence demand will go
down. The floor being higher than the equilibrium price will give more profits to seller and they would
tend to manufacture more. The sellers will then create a surplus of goods/services because the price
allows them to get some profits but the demand if the floor price remains the same will still be down or
buyers might look for alternatives.
VI. If consumers are concerned about the economy and jobs, the market should have a free reign. Let
the market forces determine the equilibrium price where the demand meets the supplies at a point
where both suppliers and buyers are comfortable. This would result in the most efficient allocation of
the market where the optimum supply creates the optimal number of jobs.

References:
Colander, David C. Macroeconomics, 7th Edition. McGraw-Hill Learning Solutions, 102007. Vital Book
file
Gornto, J. Microeconomics:Scarcity and choice. Retrieved from Lecture notes Online Web site:
http://myeclassonline.com/re/DotNextLaunch.asp?courseid=10078902&userid=26196728&sessionid=34
b6c145fc&tabid=1KDEG1pRvwxdKUKLMZRATkKUPGKUO9znpLhasIiM9cc=&sessionFirstAuthStor
e=true&macid=fYzCc6wV3MkfWhcRUnsMblr6xKDE1wMbIHzlXwwDnE5JJ5X0my5qdIe7pBFn5Ut+a
hTgdnN2dpQPBRq8eDusFyyBKsgN8oNkxdZFDfKqRZA7rka4dLj3EYSpH9ZlmpL9X+qhGFLNnL7ax
GeKTs5y/dB49DRXAQHEU4iNx+ZkWAqZLO4EaAnxf02u3Sa4L1OIoWk/b+DQR+1EAXA6rWcNLw
==
Heakal,

R.

Economics

Basics:

Supply

and

Demand.

http://www.investopedia.com/university/economics/economics3.asp

Retrieved

from