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 – 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?