The Basics of Supply and Demand Essay Example for Free

The Basics of Supply and Demand Essay 1) Use supply and demand curves to illustrate how each of the following events would affect the price of butter and the quantity of butter bought and sold: a. An increase in the price of margarine. b. An increase in the price of milk. c. A decrease in average income levels. 2). Use Supply and demand curve shifts to illustrate the effect of the following events on the market for apples. Make clear the direction of the change in both price and quantity sold. a. Scientists find that an apple a day does indeed keep the doctor away. b. The price of orange triples. c. A drought shrinks the apple crop to one-third its normal size. d. Thousands of college students abandon the academic life to become apple pickers. e. Thousands of college students abandon the academic life to become apple growers. 3) The rent control agency of New York City has found the aggregate demand is QD = 100 5P. Quantity is measured in tens of thousand of apartments. Price, the average monthly rental rate, is measured in hundreds of dollars. The agency also noted that the increase in Q at lower P results from more three-person families coming into the city from Long Island and demanding apartments. The city’s board of realtors acknowledges that this is a good demand estimate and has shown that supply is Qs =50 + 5P. a. If both the agency and the board are right about demand and supply, what is the free market price? What is the change in city population if the agency sets a maximum average monthly rental of $100, and those who cannot find an apartment leave the city? b. Suppose the agency bows to the wishes of the board and sets a rental of $900 per month on all apartments to allow landlords a â€Å"fair† rate of return. If 50 percent of any long-run increases in apartment offerings comes from new construction, how many apartments are constructed? 4) Much of the demand for U.S agricultural output has come from other countries. From Example 2.4, total demand is Q = 3244 283P. In addition, we are told that domestic demand is Qd =1700 – 107P. Domestic supply is Qs = 1944 + 207P. Suppose the export demand for wheat falls by 40 percent. a. U.S farmers are concerned about this drop in export demand. What happens to the free market price of wheat in the United States? Do the farmers have much reason to worry? b. Now suppose the U.S government wants to buy enough wheat each year to raise the price to $3.50 per bushel. With this drop in export demand, how much wheat would the government have to by each year? How much would this cost the government?