Chapter 3. Applications of Demand and Supply

PROBLEMS

  1. A low-income country decides to set a price ceiling on bread so it can make sure that bread is affordable to the poor. Table 3.3 provides the conditions of demand and supply. What are the equilibrium price and equilibrium quantity before the price ceiling? What will the excess demand or the shortage (that is, quantity demanded minus quantity supplied) be if the price ceiling is set at $2.40? At $2.00? At $3.60?
Table 3.3 Price, Quantity Demanded, and Quantity Supplied for Bread

Price

Qd

Qs

$1.60

9,000

5,000

$2.00

8,500

5,500

$2.40

8,000

6,400

$2.80

7,500

7,500

$3.20

7,000

9,000

$3.60

6,500

11,000

$4.00

6,000

15,000
  1. Table 3.4 shows the supply and demand for movie tickets in a city. Graph demand and supply and identify the equilibrium. Then calculate in a table and graph the effect of the following two changes.

a.  Three new nightclubs open. They offer decent bands and have no cover charge, but make their money by selling food and drink. As a result, demand for movie tickets falls by six units at every price.

b.  The city eliminates a tax that it placed on all local entertainment businesses. The result is that the quantity of movies supplied at any given price increases by 10%.

Table 3.4 Price, Quantity Demanded, and Quantity Supplied for Movie Tickets
Ticket Price Qd Qs
$5.00 26 16
$6.00 24 18
$7.00 22 20
$8.00 21 21
$9.00 20 22
    1. Table 3.5 illustrates the market’s demand and supply for cheddar cheese. Graph the data and find the equilibrium. Next, create a table showing the change in quantity demanded or quantity supplied, and a graph of the new equilibrium, in each of the following situations:

a. The price of milk, a key input for cheese production, rises, so the supply decreases by 80 pounds at every price.

b. A new study says that eating cheese is good for your health, so demand increases by 20% at every price.

Table 3.5 Price, Quantity Demanded, and Quantity Supplied for Cheddar Cheese
Price Per Pound Quantity Demanded Quantity Supplied
$3.00 750 540
$3.20 700 600
$3.40 650 650
$3.60 620 700
$3.80 600 720
$4.00 590 730

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UH Microeconomics 2019 Copyright © by Terianne Brown; Cynthia Foreman; Thomas Scheiding; and Openstax is licensed under a Creative Commons Attribution 4.0 International License, except where otherwise noted.