Exam 2: The Basics of Supply and Demand

Suppose that the resale of tickets to professional football games is illegal in Missouri. Due to the high demand for Chiefs (who play in Kansas City, Missouri) tickets there is a shortage of tickets at the current ticket price. Given that the Chiefs will not raise the price at which they sell the tickets, what would be the result of allowing tickets to be resold in a secondary market at whatever price the market would support? If speculators entered the market and began buying tickets directly from the Chiefs in hopes of reselling the tickets later, what would happen to the line outside of the ticket offices when the tickets are initially sold?

This year a new oil field with substantial reserves has been discovered. Such discoveries are not made every year. Therefore an increase in the demand for oil will:

Harding Enterprises has developed a new product called the Gillooly Shillelagh. The market demand for this product is given as follows: Q = 240 - 4P a. At what price is the price elasticity of demand equal to zero? b. At what price is demand infinitely elastic? c. At what price is the price elasticity of demand equal to one? d. If the shillelagh is priced at $40, what is the point price elasticity of demand?

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. Determine the equilibrium price and sales. Determine the amount of shortage or surplus that would develop at P = $40/ton.

Suppose that a small market Major League Baseball team currently charges $12 for a ticket. At this price, they are able to sell 12,000 tickets to each game. If they raise ticket prices to $15, they would sell 11,053 tickets to each game. What is the price elasticity of demand at $12? If the demand curve is linear, what is the algebraic expression for demand?

Which of the following is NOT an application of supply and demand analysis?

Which of the following statements about the diagram below is true?

Which of the following statements about the diagram below is true?

Suppose the market price for wheat changes, and we move from point A to point B on the wheat demand curve. If the price elasticity of wheat demand was -0.3 at point A and -0.4 at point B, what is a plausible value for the arc elasticity of demand for wheat between points A and B?

One form of economic stimulus that state governments can use is to exempt certain types of purchases from state sales tax. For example, a law that permanently exempts business equipment from state sales tax may stimulate purchases of these goods because the law effectively reduces the price of the equipment. Business equipment such as computers or vehicles are durable goods, so should we expect the tax exemption program to have more impact on equipment demand in the short run or long run?

There are two techniques of egg production: free range (where hens roam around the farm) or factory (where hens are fed and watered in wire cages). The free range technique has a much more elastic supply curve than the factory technique. When the demand for eggs falls:

Which of the following will cause the price of beer to rise?

Ice cream can be frozen. In the short run the magnitude of the own price elasticity of demand for ice cream:

Figure 2.1 -Refer to Figure 2.1. At point E, demand is:

A simple linear demand function may be stated as Q = a - bP + cI where Q is quantity demanded, P is the product price, and I is consumer income. To compute an appropriate value for b, we can use observed values for Q and P and then set -b(P/Q) equal to the:

A supply curve reveals:

The monthly supply of desktop personal computers is given by the equation Q_S = 15,000 + 43.75P. At a price of $800, what is the price elasticity of supply?

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? c. If the government refused to let American raise the price when demand increased in (b) above, what shortage is created?

Scenario 2.2: In 1992, the Occupational Safety and Health Authority passed the Bloodborne Pathogens Standard (BBP), which regulates dental office procedures. This regulation is designed to minimize the transmission of infectious disease from patient to dental worker. The effect of this regulation was both to increase the cost of providing dental care and to ease the fear of going to the dentist as the risk of contracting an infectious disease. -Refer to Scenario 2.2. Under what circumstances will the equilibrium level of output of dental care remain the same?

Supply curves for secondary supply resources (e.g., scrap metal) become: