50 HomeWork Sets for Microeconomics

HomeWork Set II-3

Supply and Demand Analysis
(Chapters 3 & 4)


Changes in Supply Vs Changes in Quantity Supplied

Use this figure and response column to answer the questions below. (Each scenario should cause
no response, a movement from a to points e or d, or a shift from a to b or c.)



Starting in each instance at point a, what will happen to supply when:

1. New firms enter the industry?
2. Price increases?
3. The price of a substitute in production increases?
4. Price decreases?
5. The price of an input increases?
6. Losses cause some firms to exit the industry?
7. New technology reduces the costs of production?
POSSIBLE RESPONSE

a. no response
b. increase in supply (shift to b)
c. decrease in supply (shift to c)
d. movement to d (increase in quantity
supplied)
e. movement to e (decrease in quantity
supplied)

HomeWork Set II-3: Supply and Demand Analysis 51
Shortage, Surplus, and Equilibrium

Use this figure to answer the following questions.

8. The quantity demanded at a price of $50 is?
9. By how many units will quantity demanded
exceed quantity supplied if the price is $30?
10. The price (in dollars) at which quantity supplied
equals 30 is?
11. The price (in dollars) at which a surplus will
occur is?









Use this figure, which illustrates the peanut market, to answer the following questions. For each
question assume that the market begins at D
0
and S
0
.

12. What will be the new equilibrium price if peanut
workers receive a wage increase?
13. What will be the new equilibrium quantity if
eating peanuts is predicted to prevent AIDS
while at the same time new endangered species
protections greatly reduce the land available for
peanut production?
14. What will be the new equilibrium quantity if the
price of U-Haul trailer rentals increases by 50%?
15. What is the new equilibrium price if peanuts are
an inferior good and real income per capita
declines?




52 HomeWork Sets for Microeconomics
Price Floors and Price Ceilings

This figure represents a labor market for unskilled workers. Currently the government has set a
minimum wage of W
3
in this labor market, but is considering elimination of the minimum wage
legislation.

16. Is a minimum wage a price floor or a price
ceiling?
17. The number of jobs available could be increased
if the minimum wage was eliminated because
quantity demanded of labor would increase from
Q
1
to?
18. An elimination of the minimum wage in this
market should decrease the quantity supplied of
labor from Q
2
to?
19. The horizontal distance between which two
points measures the possible unemployment
caused by the minimum wage of W
3
?
20. Will some workers be better off if a minimum
wage is eliminated? (yes/no)
21. Will some workers be worse off if a minimum
wage of W
3
is eliminated? (yes/no)
22. What will be the market wage rate after the market adjusts to an elimination of the minimum
wage?

Assume the market wage is currently W
2
and no minimum wage laws are in effect.

23. What should happen to the wage rate over time? (no change, increase, decrease)

Question for Thought
Which workers would oppose a reduction or elimination of the minimum wage? (Who might be
made worse off by the elimination of the minimum wage?)



Fleeing stagnation in California, economic refugees have descended in record numbers upon the
towns and cities of the Rocky Mountains. Accompanying the rapid rise in population has been a
concomitant rise in the prices paid for rental housing. Long time residents in many towns are
beginning to call for rent controls so that living remains "affordable" in their town.

24. Are rent controls a price ceiling or a price floor?
25. Who will benefit from the rent controls?
Answers for HomeWork Set II-3

HomeWork Set II-3: Supply and Demand Analysis 53
(a) yes (a) 20 (a) price floor
(b) no (b) 25 (b) price ceiling
(c) W
1
(c) 30 (c) Q
1

(d) W
2
(d) 80 (d) Q
0

(e) W
3
(e) 60 (e) Q
2


(a) 0 (a) 40 (a) Q
3

(b) 10 (b) 50 (b) P
0

(c) increase (c) de (c) P
1

(d) decrease (d) ec (d) P
2

(e) no change (e) bc (e) P
3


(a) all renters
(b) all landlords
(c) all renters able to
find apartments
at controlled
prices

(d) equilibrium price
(e) market price