Problem A
Assume that the price of smartphones increased from $200 to $222 per unit. The manufacturer decides to supply 12,000 units instead of 10,000. Calculate the price elasticity of supply. Is supply elastic or inelastic? Describe at least one factor that determines elasticity.
Problem B
Suppose that the demand and supply schedules for corn per ton per month are as given in the table below.
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Order Paper Now| Months | Price | Demand | Supply |
|---|---|---|---|
| January | 120 | 800 | 1300 |
| February | 110 | 900 | 1200 |
| March | 100 | 1000 | 1000 |
| April | 90 | 1100 | 800 |
| May | 80 | 1200 | 600 |
- What is the market equilibrium corn price per month and the market equilibrium number of corn demanded and supplied? Use Excel to graph this out.
- If the local government can enforce a price-control law that sets the maximum price of $90.00, will there be a surplus or a shortage? How many tons? And how many tons will actually be sold?
- Suppose that a new government is elected that wants to keep out the poor. It declares that the minimum price that can be charged is $110.00. If the government can enforce that price floor, will there be a surplus or a shortage? Of how many tons? And how many tons will actually be sold?
- Suppose that the government wishes to decrease the market equilibrium price by increasing the supply of corn. Assuming that demand remains unchanged, by how many tons of corn would the government have to increase the supply of corn in order to get the market equilibrium rental price to fall to $90.00?
Problem C
Evaluate each of the eight supply and demand scenarios below by answering the following questions:
- How will each affect equilibrium price and equilibrium quantity in a competitive market?
- Will price and quantity rise, fall, or be unchanged?
- Based on the magnitudes of the shifts, will the answers be indeterminate?
Provide appropriate supply and demand graphs to illustrate your answers and use supply and demand to verify your answers.
- Supply decreases and demand is constant.
- Demand decreases and supply is constant.
- Supply increases and demand is constant.
- Demand increases and supply increases.
- Demand increases and supply is constant.
- Supply increases and demand decreases.
- Demand increases and supply decreases.
- Demand decreases and supply decreases.
Problem D
How does your understanding of supply and demand help you in making business decisions? Provide examples.
Resources
The following article from the Capella University Library is linked directly in this course.
- Zerbe, R. O. Jr., & McCurdy, H. E. (1999). The failure of market failure. Journal of Policy Analysis and Management, 18(4), 558–578.
- McAfee, P. R. (2006). Introduction to economic analysis. Retrieved from http://www.mcafee.cc/Introecon/IEA.pdf
- About.com. (n.d.). Supply and demand. Retrieved from http://economics.about.com/od/supply-and-demand/Su…
- Ahleresten, K. (2008). Essentials of microeconomics. London, GBR: Bookboon.
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