Supply and Demand

Paper , Order, or Assignment Requirements



Problem 1

For each of the following draw a separate diagram to demonstrate the answer. (Hint: Remember the difference in a change in demand [supply] and a change in quantity demanded [supplied]. Don’t shift both curves unless appropriate). Describe what happens to equilibrium price and sales. Explain why or why not this makes sense in the real world.


Show the effect on the U.S. new construction residential housing market in the event of a severe economic recession such as the country recently experienced.


Show the effect on the U.S. air travel market if American Airlines unexpectedly folds (ceases operations) overnight.


Show the effect on the U.S. domestic car market if the price of foreign cars increases due to an exchange rate shock.



Show the effect on the market for large SUVs if the price of gasoline in the U.S. comes to rest at greater than $4 per gallon.



Show the effect of setting the price of Super Bowl tickets at a price lower than equilibrium price.


Problem 2

Use the data given in Problem 7 on page 73 of the text to answer the following questions: a) what is the equilibrium price?, b) if supply at every price is reduced by 6 gallons, what will the new equilibrium price be?, c) if the government freezes the price of gasoline at its initial equilibrium price, how much of a surplus or shortage will exist when supply is reduced as described above?, and d) illustrate your answers on a graph.

Problem 3

Refer to Problem 1 on page 72 of the text. Using the “new demand” curve, determine the size of the market surplus or shortage that would exist at a price of (a) $40 (b) $20. Illustrate your answers on a graph.


Problem 4

Refer to Problem 6 on page 73 and the News Wire on page 64 of the textbook and show graphically the market situation for the iPhone 5 in September 2012 .

Internet Questions

Question 1


Go to and do a search using keywords: crude oil prices. Find an article, which discusses recent changes in the price of crude oil. I want you to 1) in one full page, discuss the reasons stated in the article explaining why the price of crude oil has changed, and 2) use supply and demand graphs to illustrate what is being discussed in the article.

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