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Ecn222Fall2010Chapter4questions,dueThursday,September16th

1. Whatisthedifferencebetweenachangein“demand”andachangein“quantitydemanded”?
Achangeindemandisashiftoftheentirecurvecausedbyachangeinanonprice
determinant
Achangeinquantitydemandedisamovementalongthecurvecausedbyachangeinprice.

2. Useonediagramtoillustrateachangein“demand”andonetoillustrateachangein“quantity
demanded”

P

Changein P

Demand ChangeinQD

P0
P0

D

D D

Q0 Q Q
  Q0


3. Ifthepriceofbagelsincreases
a. Thedemandforbagelswilldecrease
b. Thedemandforbagelswillincrease
c. Thedemandformuffinswillincrease
d. Thedemandformuffinswilldecrease

4. AnalyzethemarketforsurfinglessonsatWrightsvillebeach.Foreachofthefollowing,which
curveshifts(orboth)andwhichdirection(s)?
Event Curve Direction
AHurricanecausesriptidesandmakessurfingmoredangerous
Demand Left
AnoilspillintheGulfcausesmoretouriststovisitWB
Demand Right
Asharkattackbringsattentiontothedangersoftheocean
Demand Left
Withabadeconomymorestudentsopensurfschoolsafter
graduationsincetheycannotfindotherjobs Supply Right
Wrightsvillebeachbeginsrequiringexpensivelicensesto
conductbusinessonthebeach Supply Left
Theeconomybeginstorecoverandpersonalincomerises
Demand Right
Hurricaneactivitypicksupandit’spossiblethebeachwillbe
closedinthefuture Both Right
Dr.JoneswhoREALLYneedssomesunstrollsontothebeach
andscaresallthetouristsaway Demand Left
5. #14inMankiw,Chapter4
SupposethepriceofbasketballticketsatUNCWisdeterminedbymarketforces.Currentlythe
demandandsupplyschedulesareasfollows:

Price QuantityDemanded QuantitySupplied

$4 14,000 8,000
$8 11,000 8,000
$12 8,000 8,000
$16 5,000 8,000
$20 2,000 8,000

a. Usinggraphpaperonthecoursewebsite(oryourown)drawthedemandandsupply
curves.Whatisunusualaboutthissupplycurve?Whymightthisbetrue?
SupplyCurveisverticalbecauseoffixedamountofseatsavailableandnomarginal
costofprovidinganotherticket.

b. Whataretheequilibriumpriceandquantityoftickets?
P=$12,Q=8000

c. Asyouareaware,UNCWhasbeengrowing,supposetheenrollmentnextyearis
expectedtoincreaseby5000students,andthose5000additionalstudentswillhave
thefollowingsupplyschedule:
Price QuantityDemanded
$4 4,000tickets
8 3,000
12 2,000
16 1,000
20 0

Nowaddtheolddemandscheduleandthedemandscheduleforthenewstudentsto
calculatethenewdemandscheduleforallofUNCW.Drawthenewdemandcurveon
yourgraph.Whatwillbethenewequilibriumpriceandquantity?
 P=$14(orsomethingclose),Q=8,000

6. Watchthevideonewsreportbelowand,onanothersheetorpaper,diagramthemarketfor
coffeeusingtheSupplyandDemandmodel.(Rememberourthreestepprocess,whichcurve
shifts,whichway,what’stheneweqm?)Besuretolabeltheinitialpriceandquantityaswellas
thenewequilibrium.Whichcurveshiftedandwhy?

http://www.youtube.com/watch?v=bc3XWPBxqQg

Demandcurveshiftsinwardasincomeandexpectationofincomedecreases.Pfalls,Qfalls

7. Watchthefollowingvideobelowonminimumwage.Let’ssupposethecurrentminimumwage,
$7.25anhour,istheinitialequilibriumwageforcheckoutclerksatTarget.(norealreasonto
assumethisisthemarketwagebutourpurposeslet’sassumeitissowehaveastartingpoint.)
AssumethatbecauseofyoureconomicseducationatUNCWyoupursueacareerasan
economistandareanadvisortothePresidentoftheUnitedStates.Thepresidenttellsyouthat
livingonminimumwageisreallytoughandhe/sheisconsideringaproposaltoraisethe
minimumwageandwantsyouropinion.Yousaythatraisingtheminimumwagewilldefinitely
helpminimumwageworkerswhoseetheirpayincreasebutthereisadownside,whatisit?
(hint,thinkaboutthenumberofcheckersTargetwouldhireemployed)UseaS&Dmodelona
separatepieceofpapertoillustratehowtothinkabouttheproblem.(labelthesurplusor
shortage)

http://www.youtube.com/watch?v=E3Hd3hf7Hw

Iftheminimumwageisincreasedthenpurchasersofcashiers,Target,willreducetheir
quantitydemandedbutmorepeoplewouldbewillingtoworkascashierssoquantitysupplied
increases.Thismeanstherewillbeasurplusofcashiersoninthelabormarket.Alsonotice
thatthequantitydemandedbytargetislessthatit’soldquantitydemandedsosomeworkers
actuallylosetheirjobs.





8. UsetheSupplyandDemanddiagramtoanalyzetheeffectsofthefollowingtwoeventsonthe
marketforseafood.SupposeanoilspillclosesmuchoftheGulfofMexicotofishingandanew
studycomesoutthatsaysadditionalfishoilinadietisgoodforpreventingmacular
degeneration.Besuretolabelaxes,initialandnewpricesandquantitiesandclearlyshow
whichcurveshifted.

a. Analyzetheeffectonthemarketofonlytheoilspill.Whathappenstoprice?Quantity?
Supplyshiftsin,Pincreases,Qdecreases

b. Analyzetheeffectonthemarketofonlythestudythatsayseatingfishoilisgoodfor
yourvision.Whathappenstoprice?Quantity?
Demandshiftsout,Pincreases,QIncreases

c. Nowanalyzewhathappensifbotheventsoccursimultaneously.Whathappensto
price?Quantity?(Pleaseusetwographsforthistoshowthetwodifferentoutcomesin
themarket.)
Whensupplydecreasesanddemandincreasesweknowpriceincreasesbutquantityis
ambiguous.
5.





















6.

P

P0
P1

D D

Q1 Q0 Q



7.
P
SurplusofLabor
(cashiers) S

$8.00

7.25

D

QD Q0 QS Q





8.a.
P
S1
S0

P1

P0

D D

Q1 Q0 Q



8.b.
P

P1

P0

D1

Q0 Q1 Q






 8.c.
P
S1
S0

P1

P0

D1

D0

Q0 Q1 Q




S1
P

S0

P1

P0

D1

D0

Q1 Q0 Q





MiscellaneousComments

Note,inproblem3,achangeinthepriceofbagelswillleadtoachangeinquantitydemandedofbagels,
notachangeindemand.(seedefinitionsinquestions1and2)BagelsandMuffinsaresubstitutessoan
increaseinthepriceofbagelswillcauseanincreaseinthedemandformuffins.

#4.Apossibleclosingofthebeachinthefuturewouldmeanifyouwanttotakeasurfinglesson,takeit
now,demandshiftsout.Also,sellersknowthattheymightnotbeabletoworkinthefuture,worknow,
makehaywhilethesunshines.

#7Notethatthenumberofcashiersemployedfellfromtheinitialnumber,QE,tothenewlower
quantitytargetdemands,QD.Theactualquantityhired(orpurchased)isequaltothelesserofthetwo,
quantitysupplied,orquantitydemanded.Youcan’tsellmorethanbuyersarewillingtopurchaseand
youcan’tbuymorethansellersarewillingtosupply.Atequilibrium,quantitydemandedequals
quantitysuppliedbutwhenthereissomethinglikeaminimumwagekeepingapricefromadjustingto
equilibriumweseethequantityequalsthelesserofthequantitysuppliedordemanded.