Microeconomics

Michael Parkin

Chapter 3

Demand and Supply - all with Video Answers

Educators

Chapter Questions

Problem 1

In April 2014, the money price of a carton of milk was $$\$2.01$$ and the money price of a gallon of gasoline was $$\$ 3.63$$. Calculate the relative price of a gallon of gasoline in terms of milk.

Filip Kokotovic

Filip Kokotovic

Numerade Educator

Problem 2

The price of food increased during the past year.
a. Explain why the law of demand applies to food just as it does to other goods and services.
b. Explain how the substitution effect influences food purchases when the price of food rises and other things remain the same.
c. Explain how the income effect influences food purchases and provide some examples of the income effect.

Filip Kokotovic

Filip Kokotovic

Numerade Educator

Problem 3

Which of the following goods are likely substitutes and which are likely complements? (You may use an item more than once): coal, oil, natural gas, wheat, corn, pasta, pizza, sausage, skateboard, roller blades, video game, laptop, iPad, smartphone, text message, email

Filip Kokotovic

Filip Kokotovic

Numerade Educator

Problem 4

As the average income in China continues to increase, explain how the following will change:
a. The demand for beef
b. The demand for rice

cB

Cindy B

Numerade Educator

Problem 5

In 2016, the price of corn fell and some corn farmers will switch from growing corn in 2017 to growing soybeans.
a. Does this fact illustrate the law of demand or the law of supply? Explain your answer.
b. Why would a corn farmer grow soybeans?

cB

Cindy B

Numerade Educator

Problem 6

Dairies make low-fat milk from full-cream milk, and in the process they produce cream, which is made into ice cream. The following events occur one at a time:
(i) The wage rate of dairy workers rises.
(ii) The price of cream rises.
(iii) The price of low-fat milk rises.
(iv) With a drought forecasted, dairies raise their expected price of low-fat milk next year.
(v) New technology lowers the cost of producing ice cream. Explain the effect of each event on the supply of low-fat milk.

cB

Cindy B

Numerade Educator

Problem 7

The demand and supply schedules for gum are
a. Suppose that the price of gum is $70 \mathrm{c}$ a pack. Describe the situation in the gum market and explain how the price adjusts.
b. Suppose that the price of gum is $30 \mathrm{c}$ a pack. Describe the situation in the gum market and explain how the price adjusts.

Roee Shalom

Numerade Educator

Problem 8

The following events occur one at a time:
(i) The price of crude oil rises.
(ii) The price of a car rises.
(iii) All speed limits on highways are abolished.
(iv) Robots cut car production costs.
Explain the effect of each of these events on the market for gasoline.

cB

Cindy B

Numerade Educator

Problem 9

In Problem 7, a fire destroys some factories that produce gum and the quantity of gum supplied decreases by 40 million packs a week at each price.
a. Explain what happens in the market for gum and draw a graph to illustrate the changes.
b. At the same time as the fire, the teenage population increases and the quantity of gum demanded increases by 40 million packs a week at each price. What is the new market equilibrium? Show the changes on your graph.

cB

Cindy B

Numerade Educator

Problem 10

Singing the Blues: March Frost Destroys State Blueberry Crop Chris and Rhonda Luther had big plans for their small blueberry farm, but freezing temperatures killed these plans, reducing their usual output by about 95 percent. The Georgia Department of Agriculture estimates the freeze to have cut production 80 percent. Source: Red and Black, March 25, 2017 Make a graph to illustrate the market for blueberries before and after the unusually cold March weather.

Niamat Khuda

Numerade Educator

Problem 11

What features of the world market for crude oil make it a competitive market?

cB

Cindy B

Numerade Educator

Problem 12

The money price of a textbook is $$\$ 90$$ and the money price of the Wii game Super Mario Galasy is$$\$ 45$$.
a. What is the opportunity cost of a textbook in terms of the Wii game?
b. What is the relative price of the Wii game in terms of textbooks?

Vysakh M

Numerade Educator

Problem 13

The price of gasoline has increased during the past year.
a. Explain why the law of demand applies to gasoline just as it does to all other goods and services.
b. Explain how the substitution effect influences gasoline purchases and provide some examples of substitutions that people might make when the price of gasoline rises and other things remain the same.
c. Explain how the income effect influences gasoline purchases and provide some examples of the income effects that might occur when the price of gasoline rises and other things remain the same.

cB

Cindy B

Numerade Educator

Problem 14

Think about the demand for the three game consoles: Xbox One, PlayStation 4, and Wii U. Explain the effect of each of the following events on the demand for Xbox One games and the quantity of Xbox One games demanded, other things remaining the same. The events are
a. The price of an Xbox One falls.
b. The prices of a PlayStation 4 and a Wii U fall.
c. The number of people writing and producing Xbox One games increases.
d. Consumers' incomes increase.
e. Programmers who write code for Xbox One games become more costly to hire.
f. The expected future price of an Xbox One game falls.
g. A new game console that is a close substitute for Xbox One comes onto the market.

Natalie Britton

Natalie Britton

Numerade Educator

Problem 15

Classify the following pairs of goods and services as substitutes in production, complements in production, or neither.
a. Bottled water and health club memberships
b. French fries and baked potatoes
c. Leather boots and leather shoes
d. Hybrids and SUVs
e. Diet coke and regular coke

Kaylee Mcclellan

Kaylee Mcclellan

Numerade Educator

Problem 16

When a timber mill makes logs from trees it also produces sawdust, which is used to make plywood.
a. Explain how a rise in the price of sawdust influences the supply of logs.
b. Explain how a rise in the price of sawdust influences the supply of plywood.

Jessica Kluck

Numerade Educator

Problem 17

New Maple Syrup Sap Method With the new way to tap maple trees, farmers could produce 10 times as much maple syrup per acre. Source: cbc.ca, February 5, 2014 Will the new method change the supply of maple syrup or the quantity supplied of maple syrup, other things remaining the same? Explain.

cB

Cindy B

Numerade Educator

Problem 18

a. Label the curves. Which curve shows the willingness to pay for a pizza?
b. If the price of a pizza is $$\$ 16$$, is there a shortage or a surplus and does the price rise or fall?
c. Sellers want to receive the highest possible price, so why would they be willing to accept less than $$\$ 16$$ a pizza?

Kaylee Mcclellan

Kaylee Mcclellan

Numerade Educator

Problem 19

a. If the price of a pizza is $$\$ 12$$, is there a shortage or a surplus and does the price rise or fall?
b. Buyers want to pay the lowest possible price, so why would they be willing to pay more than $$\$ 12$$ for a pizza?

Kaylee Mcclellan

Kaylee Mcclellan

Numerade Educator

Problem 20

The demand and supply schedules for potato chips are
a. Draw a graph of the potato chip market and mark in the equilibrium price and quantity.
b. If the price is $60 \mathrm{c}$ a bag, is there a shortage or a surplus, and how does the price adjust?

Natalie Britton

Natalie Britton

Numerade Educator

Problem 21

In Problem 20, a new dip increases the quantity of potato chips that people want to buy by 30 million bags per week at each price.
a. Does the demand for chips change? Does the supply of chips change? Describe the change.
b. How do the equilibrium price and equilibrium quantity of chips change?

cB

Cindy B

Numerade Educator

Problem 22

In Problem 20, if a virus destroys potato crops and the quantity of potato chips produced decreases by 40 million bags a week at each price, how does the supply of chips change?

cB

Cindy B

Numerade Educator

Problem 23

If the virus in Problem 22 hits just as the new dip in Problem 21 comes onto the market, how do the equilibrium price and equilibrium quantity of chips change?

cB

Cindy B

Numerade Educator

Problem 24

U.S. Craft Beer Bolsters U.K. Hop Production U.K. hop farmers stepped up production in response to a rapid growth of U.S. craft beer production. U.S. craft beer makers prefer the subtle taste of U.K. hop varieties.Source: BBC, October 3, 2014
a. Describe the changes in the market for U.S. craft beer.
b. Explain whether the increase in U.K. hop
production is a change in supply or a change in the quantity supplied.
c. What could be the impact on the price of U.K. hops if U.S. farmers switched to U.K. hop varieties?

Jeremiah Mbaria

Jeremiah Mbaria

Numerade Educator

Problem 25

Vietnamese Farmers Switch to Pepper as Coffee Prices Fall
The high pepper price and falling coffee price have made Vietnamese farmers replace coffee plants with pepper plants. Analysts fear farmers have used diseased pepper plants which could fail.
Source: VietNam Ners, May 28, 2016
a. Explain how the market for Vietnamese coffee will change as farmers switch to pepper.
b. If pepper plants fail, what would happen to the price of pepper?

Rashmi Sinha

Numerade Educator

Problem 26

Watch Out for Rising Dry-Cleaning Bills The price of dry-cleaning solvent doubled and more than 4,000 dry cleaners disappeared as consumers cut back. The price of hangers used by dry cleaners is now expected to double.
Source: CNN Money, June 4, 2012
a. Explain the effect of rising solvent prices on the market for dry cleaning.
b. Explain the effect of consumers becoming more budget conscious along with the rising price of solvent on the price of dry cleaning.
c. If the price of hangers does rise this year, do you expect additional dry cleaners to disappear? Explain why or why not.

cB

Cindy B

Numerade Educator

Problem 27

After you have studied Eawowis in the News on $\mathrm{Pp} .78-79$, answer the following questions.
a. Would you classify frozen concentrated orange juice as a normal good or an inferior good? Why?
b. What would happen to the price of orange juice if citrus greening wiped out the Florida orange crop?
c. What are some of the substitutes for orange juice and what would happen to the demand, supply, price, and quantity in the markets for each of these items if citrus greening became. more severe?
d. What are some of the complements of orange juice and what would happen to the demand, supply, price, and quantity in the markets for each of these items if citrus greening became more severe?

Xiaomin Bian

Numerade Educator