Exam 2: The Basics of Supply and Demand

In a city with a medium sized population, the equilibrium price for a city bus ticket is $1.00, and the number of riders each day is 10,800. The short-run price elasticity of demand is -0.60, and the short-run elasticity of supply is 1.0. a. Estimate the short run linear supply and demand curves for bus tickets. b. If the demand for bus tickets increased by 10% because of a rise in the world price of oil, what would be the new equilibrium price of bus tickets? c. If the city council refused to let the bus company raise the price of bus tickets after the demand for tickets increases (see (b) above), what daily shortage of tickets would be created? d. Would the bus company have an incentive to increase the supply in the long run given the city council's decision in (c) above? Explain your answer.

Consider the demand curve of the form Q = a - bP. If a is a positive real number, and b = 0, then demand is

Suppose that, at the market clearing price of natural gas, the price elasticity of demand is -1.2 and the price elasticity of supply is 0.6. What will result from a price ceiling that is 10 percent below the market clearing price?

The price of good A goes up. As a result, the demand for good B shifts to the left. From this we can infer that:

Suppose the observed annual quantity of steel exchanged in the European market is 30 million metric tons, and the observed market price is 90 euros per ton. If the linear demand function for steel takes the form Q = a - 0.9P, what is an appropriate value for the intercept coefficient a?

We observe that both the price of and quantity sold of golf balls are rising over time. This is due to:

When the current price is above the market-clearing level we would expect:

The inverse demand curve for product X is given by: P_X = 25 - 0.005Q + 0.15P_Y, where P_X represents price in dollars per unit, Q represents rate of sales in pounds per week, and P_Y represents selling price of another product Y in dollars per unit. The inverse supply curve of product X is given by: P_X = 5 + 0.004Q. a. Determine the equilibrium price and sales of X. Let P_Y = $10. b. Determine whether X and Y are substitutes or complements.

You are analyzing the demand for good X. Which of the following will result in a shift to the right of the demand curve for X?

A vertical demand curve is

Which of the following statements is NOT true?

From 1970 to 2010, the real price of eggs decreased and the total annual consumption of eggs decreased. Which of the following would cause an unambiguous decrease in the real price of eggs and an unambiguous decrease in the quantity of eggs consumed?

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 increase?

When an industry's raw material costs increase, other things remaining the same,

Suppose the observed annual quantity of steel exchanged in the European market is 30 million metric tons, and the observed market price is 90 euros per ton. If the price elasticity of demand for steel is -0.3 in Europe, what is an appropriate value for the price coefficient (b) in a linear demand function Q = a - bP?

Scenario 2.1: The demand for books is: Q_d = 120 - P The supply of books is: Q_s = 5P -Refer to Scenario 2.1. If P = $15, which of the following is true?

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. What is the effect of the BBP on the market for dental care?

Which of the following would cause a rightward shift in the demand curve for gasoline? I. A large increase in the price of public transportation. II. A large decrease in the price of automobiles. III. A large reduction in the costs of producing gasoline.

Due to the recent increase in the price of natural gas, the quantity of coal demanded by electric power generation plants has increased. Based on this information, coal and natural gas are:

The current market price for good X is below the equilibrium price, and then the demand curve for X shifts rightward. What is the likely outcome of the demand shift?