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Econ 201 – Chapter 2: Supply and Demand
Econ 201
Chapter 2: Supply and Demand
1.The daily
demand for hotel rooms on Manhattan
Island in New York is given by the
equation
QD = 250,000 â
375P. The daily supply of hotel rooms on
Manhattan Island is given by the equation QS
= 15,000 + 212.5P. Diagram these demand
and supply curves in price and quantity space.
What is the equilibrium price and quantity of hotel rooms on Manhattan Island?
2. Suppose a new discovery in
computer manufacturing has just made computer production cheaper. Also, the popularity and usefulness of
computers continues to grow. Use Supply
and Demand analysis to predict how these shocks will affect equilibrium price
and quantity of computers. Is there
enough information to determine if market prices will rise or fall? Why?
3. Historically, investors have
considered gold commodities to be a good investment to preserve wealth in times
of inflation. If investors are no longer
worried about inflation and gold demand decreases, what do you expect will
happen to gold prices? How would your
answer change if you learn that a recent gold mine discovery will increase the
supply of gold?
4.The demand for
packs of Pokemon cards is given by the equation At a price of $2.50
per pack, what is the quantity demanded?
At $5.00 per pack, what is the price elasticity of demand?
5.The monthly
supply of desktop personal computers is given by the equation At a price of $800,
what is the price elasticity of supply?
6.Suppose that
the short-run world demand and supply elasticities for crude oil are -0.076 and
0.088, respectively. The current price
per barrel is $30 and the short-run equilibrium quantity is 23.84 billion
barrels per year. Derive the linear
demand and supply equations.
7.The market for gravel has been estimated to have these supply and
demand relationships:
Supply P = 10
+ 0.01Q
Demand P = 100 ? 0.01Q,
where P represents price per unit in dollars, and Q
represents sales per week in tons.
A)
Determine the
equilibrium price and sales.
B)
Determine the amount of shortage or surplus
that would develop at P = $40/ton
8. American Mining
Company is interested in obtaining quick estimates of the supply and demand
curves for coal. The firm’s research
department informs you that the elasticity of supply is approximately 1.7, the
elasticity of demand is approximately -0.85, and the current price and quantity
are $41 and 1,206, respectively. Price
is measured in dollars per ton, quantity the number of tons per week.
a.
Estimate linear
supply and demand curves at the current price and quantity.
b. What impact would a 10% increase in demand
have on the equilibrium price and
quantity?
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