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# List 2.

## The market forces of supply and demand

1. What are the demand schedule and the demand curve? How are they related? Why does the
demand curve slope downward?
2. Does a change in consumers tastes lead to a movement along the demand curve or a shift in
the demand curve? Does a change in price lead to a movement along the demand curve or a
shift in the demand curve?
3. Toms income declines and , as a result, he buys more spinach. Is spinach an inferior or a
normal good? What happens to Toms demand curve for spinach?
1. What are the supply schedule and the supply curve? How are they related? Why does the
supply curve slope upward?
2. Does a change in producers technology lead to a movement along the supply curve or a shift
in the supply curve? Does a change in price lead to a movement along the supply curve or a
shift in the supply curve?
1. Define the equilibrium of a market. Describe the forces that move a market toward its
equilibrium.
2. Cheese and wine are complements because they are often enjoyed together. When the price
of wine rises, what happens to the supply, demand, quantity supplied, quantity demanded,
and the price in the market for cheese?
3. Describe the role of prices in market economies?
Let assume that we build a model of a pizza market in a town. The demand for pizza is:
Demand = 300-4*Price + 0,1*Income
The supply function:
Supply = 100+6*Price -20*Price of materials
1. What are the endogenous and exogenous variables?
2. What is the equilibrium price? How does it depends on the Income and Prices of materials?
3. What quantity will be produced?
4. Let us assume that the Income is 1000 and the Price of materials is 2,5. Draw the demand
and supply curves. What is the price and quantity of a pizza?
5. What will happen if the Income rises to 2000?
6. What will happen if the Income falls to 500 and the Price of materials increases to 5? Show
the changes graphically. Compute the new equilibrium price and quantity.
Analysis of the changes in the equilibrium:
1. Suppose that one summer the weather is very hot. How does this event affect the market for
ice cream?
2. Suppose that, during another summer an earthquake destroys several ice-cream factories.
How does this event affect the market for ice cream?
3. Suppose that the hot weather and the earthquake occur at the same time. How do both
event affect the market for ice cream?

Microeconomics
Dr Anna Kowalska-Pyzalska

List 2.
The market forces of supply and demand
Explain each of the following statements using supply and-demand diagrams.
a) When a cold snap hits Florida, the price of orange juice rises in supermarkets throughout the
country.
b) When the weather turns warm in New England every summer, the prices of hotel rooms in
Caribbean resorts plummet.
c) When a war breaks out in the Middle East, the price of gasoline rises, while the price of a used
Mercedes falls.
Consider the market for minivans. For each of the events listed here, identify which of the
determinants of demand or supply are affected. Also indicate whether demand or supply is increased
or decreased. Then show the effect on the price and quantity of minivans.
a) People decide to have more children.
b) A strike by steelworkers raises steel prices.
c) Engineers develop new automated machinery for the production of minivans.
d) The price of station wagons rises.
e) A stock-market crash lowers peoples wealth.
The market for pizza has the following demand and supply schedules:
price[euro]
Quantity
Quantity
demanded
supplied
4
135
26
5
104
53
6
81
81
7
68
98
8
53
110
9
39
121
a) Graph the demand and supply curves.
b) What is the equilibrium price and quantity in this market?
c) If the actual price in this market were above the equilibrium price, what would drive the market
toward the equilibrium?
d) If the actual price in this market were below the equilibrium price, what would drive the market
toward the equilibrium?
The market for toasters has the following demand and supply schedules:
price[euro]
Quantity
Quantity
demanded
supplied
10
9
3
12
8
4
14
7
5
16
6
6
18
5
7
20
4
8
a) Graph the demand and supply curves.
b) What is the equilibrium price and quantity in this market?
Microeconomics
Dr Anna Kowalska-Pyzalska

List 2.
The market forces of supply and demand
c) Describe the situation on the market, when the price is 12 euro or 20 euro respectively.
d) What will happen with the demand curve, if the price of bread rises? Show the example of the
new equilibrium on this market.
e) What will happen with the toasters demand curve, when the new equipment to make toasts is
invented (this new equipment is preferred by most of the consumers)? How this invention will
impact the equilibrium price and quantity on that market?
Suppose that we have following demand and supply equations: P = 4QS and QD = 500 P, where QS is
the quantity supplied ; QD is the quantity demanded, and P is the market price. What is the
equilibrium price and quantity on that market. Present your results on the drawing as well.
Suppose there are following demand and supply equations of the good X: QD = 50-5P, QS=2 +3P
a) Find the equilibrium price and quantity of the good X
b) Fill up the table below
c) Draw the demand and supply curves. Mark the equilibrium price and quantity.
d) Suppose that the demand has changed. The new demand equation is as follows: QD=66-5P;
Find the new equilibrium price and quantity. Draw new demand curve and mark the new
equilibrium price and quantity.
P
QD
QS

10

As a result of increase of consumers income, the equilibrium price of the good X has increased from 3
euro to 4 euro per unit of good X. Moreover we know that:
a) If the price is 2 euro/unit, then the quantity demanded is 2 units of X.
b) The primary equilibrium quantity was 1,5 units of X, but the final equilibrium quantity
was 2,5 units of X.
c) Draw the demand and supply curves.
There are following linear function of demand and supply: QD=a-bP and QS =z+wP, where P is the
market price of the good, b and w slope coefficient (gradient) of both linear functions. whereas a and
z are intercepts. Based on the numbers from the table below, calculate the values of the parameters:
a, z, b i w and write the demand and supply equations. Mark the equilibrium price and quantity on
that market.
Price P
2
4
6

Quantity demanded QD
40
30
20

Microeconomics
Dr Anna Kowalska-Pyzalska

Quantity supplied QS
8
14
20