Part ll: Supply and Demand 11. A couple of months after Hurricane Katrina, an ar

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Part ll: Supply and Demand 11. A couple of months after Hurricane Katrina, an arti- pply curve could not have shifted leftward, because cle in The New York Times contained the following pas now $2.15, according to the Energy Information Administrationave fallen because higher prices held down demand and Gulf Coast supplies have been slowly restored." The statement about supply quantity supplied rose." True or False? Explain. d. "During the oil price spike from 2007 to line prices-the national average is mid-2008, the supply curve may have shifted leftward (say, because a rise in expected price), but the demand curve must have shifted is entirely correct and explains why gas prices came 14. In the second half of 2008, as rightward as well." True of False? Explain. down. But the statement about demand confuses two concepts you learned about in this chapter. a. What two concepts does the statement about and quantity of oil both decreased, OPEC succeeded in reducing oil production by its members, but could demand seem to confuse? Explain briefly not prevent the dramatic drop in price. Illustrate b. On a supply and demand diagram, show what most likely caused gasoline prices to rise when both the original equilibrium (before the price drop) and the final equilibrium (after the price drop) on a supply and demand diagram. Hurricane Katrina shut down gasoline refineries on the Gulf Coast More Challenging c. On another supply and demand diagram, show what most likely happened in the market for gasoline as Gulf Coast refineries were repaired and began operating again-after the Hurricane d. What role did the demand side of the market play in explaining the rise and fall of gas prices? 15. Suppose that demand is given by the equation 500 50P, where Q is quantity demanded and P is the price of the good. Supply is described by the equation Q 50 25P, where O is quantity supplied. What is the equilibrium price and quantity? 12. Draw supply and demand diagrams for market A for (See Appendix.) each of the following. Then use your diagrams to illustrate the impact of the following events. In each case, determine what happens to price and quantity 16. While crime rates fell across the country over the past few decades, they fell especially rapidly in Manhattan At the same time, there were some neighborhoods in rate remained constant. Using supply and demand crime rate in Manhattan could make the residents in from around the country move to Manhattan, what Manhattan cannot afford to pay higher rent, what the New York metropolitan area in which the crime diagrams for rental housing, explain how a falling other neighborhoods worse off. (Hint: As people happens to rents there? If people already living in A and B are substitutes, and the price of good B rises b. A and B satisfy the same kinds of desires, and there is a shift in tastes away from A and toward B c. A is a normal good, and incomes in the community increa d. There is a technological advance in the production of good A mi An analyst observes the following equilibrium price meals in a city over a tour- B is an input used to produce good A, and the quantity combinations in the market for restaurant The Using the Theory section of this chapter points out that when we observe an increase in both price and quantity, we know that the demand curve must have shifted rightward. However, we cannot rule a 13. 0 supply curve as well. Prove this by draw- ing a supply and demand graph for each of the fol- 30 Demand curve shifts rightward, supply curve shifts leftward, equilibrium price and quantity a. 50 rise. b. Demand and supply curves both shift rightward, She concludes that the market defies the law of demand. Is she correct? Why or why not? equilibrium price and quantity both rise Evaluate the following statement: "During the oil price spike from 2007 to mid-2008, we know the c.

Explanation / Answer

15) Qd= 500 - 5P

Qs = 50 + 25P

for equilbruim price and quantity = QD=QS

500 - 5P = 50 + 25P

450 = 30P

P = 15

Q = 500 - 5 *15

Q = 425

so, equilbruim price is $15 and quantity is 425

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