Economics Homework Two Answers - Student One

VeronikaF

1.The supply of a good, and the demand for that good, determine both the ______ and ______ at which the good is sold (assuming it is a free market).

a)quantity
b)price

Correct.

2.Suppose the price demand curve for a particular good is P = $30 - Q, where P is the price and Q is the quantity. Also suppose the price supply curve is P = $6 + Q. At which price and quantity will the good be sold (assuming a free market)?

Price-$18
Quantity-$12

Correct again, but no "$" on quantity.

3.When the supply of a good or service increases, such as increasing the number of oil wells, what happens to the market price of oil? Explain. When the demand for a good a good or service increases, such more people driving cars that need gasoline (refined oil), what happens to the market price of oil? Explain.

If the supply of goods or services increases, the price will automatically decrease because there is abundance for all and no one is lacking oil and therefore no one will be willing to pay the higher price. When the demand increases the price of that good gets more expensive since everyone needs gas (the quantity of that certain good is decreasing) and are willing to pay more. When quantity decreases price increases. If there is not enough to satisfy the whole world you have to pay a greater price so you may have the privilege of having gas. Supply and demand can drastically change the price of goods and services in a blink of an eye.

Superb analysis, especially the last sentence.

4.Why do grocery stores lower the price of their fruit (such as grapes) when they have an oversupply of ripened fruit? Explain by citing the downward slope of a demand curve, and describe what happens to this fruit after the grocery store lowers its price.

Grocery stores will lower the price of fruit if they have an oversupply of fruit. If the demand in food decreases the quantity of all the fruit in the store will increase since not many people are buying the fruit now. Also, fruit has a short shelf-life. The grocery store would rather sell the fruit at a discounted price than let it all go bad and lose all the money they spent. It is always better to get something rather than nothing.

Good analysis again.

5.When the New York Yankees built their new $1.5 billion ballpark, they made a decision about how many "obstructed view" bleacher seats to include. Due to the design of this new stadium, people sitting in these bleacher seats could not see all of the field because part of the stadium structure blocks part of their view. Here is what the supply and demand are for those obstructed-view seats: Quantity of "Obstructed-View" Tickets Demand Price/Ticket Supply Price/Ticket
300 $10 $3
600 $5 $5
900 $3 $7
1000 $2 $9

(A)How many "obstructed view" bleacher seats did the New York Yankees build, based on the above data, and how much does the team make from sales of these tickets at each game?

The New York Yankees built 600 seats based on the data above. They make $3,000 from sales of the tickets each game.

Correct!

(B)Suppose the City of New York passed a law for a maximum price (a "price control") of $2 per "obstructed view" bleacher ticket. Will the obstructed-view seats sell out under this law, and will people have to wait in line in order to buy them? Would you oppose or support such a law, and why?

I would oppose such a law because even though the price of each ticket would decease, the value of the ticket would also decrease. You may think that selling a good for a lower price will result in more purchases, but eventually people will not want that good anymore since it is not considered “special”. When the tickets are more expensive, people exaggerate scarcity in their minds which make them believe that they are “special”.

Only very rarely does this occur. Usually it is the "Law of Demand": a decrease in price causes an increase in demand. The important point is that the price control then results in a shortage: long lines to buy these tickets and not enough of these tickets to meet the demand, due to the artificially low price as set by the government rather than by the free market. (Minus 1).

6."Time is money." Explain. Or, as an alternative, improve on our definition of a "free market." Or, as a third alternative, explain how the free market is so much powerful than even the wealthiest people in the world.

“Time is money” is a very wise saying which describes how by wasting time you are missing the opportunity of earning more money. Many people today waste time watching TV and playing video games when they could be working and gaining something positive from it. Sure it is fun to watch TV, but do you really get anything from it? Instead of working your eyes by watching TV, work your brain so that you may have something to carry with you for the rest of your life. The enjoyment you get from watching TV quickly disappears but the proud feeling of actually accomplishing something will last forever.

Excellent! May use as a model.

7.Explain why waiting lists develop in countries (like Canada and England) where the government prohibits anyone from charging more than fixed prices for medical services, assuming that these fixed prices are lower than what the prices would be under supply and demand in the free market. (Hint: the reason is related to the effect of price controls on the supply of a good or service.)

The supply of medical equipment is scarce which causes the price of medical services to increase. In trying to solve this problem, the governments in both Canada and England fixed prices for medical services, which resulted in waiting lists since now almost everyone could afford medical care. The supply did not meet the demand. In this case, deaths increase instead of recovery.

Good, but not entirely clear. The question is not asking about "medical equipment," which are goods, but about "medical services." As the hint indicates, the government price control lowers the supply in addition to increasing demand, because fewer people are going to work long hours when their pay is limited. With those clarifications, your answer is fine. (Minus 1).

Honors

Write an essay of about 300 words total on one or more of the following topics:

8.Discuss the effect of supply and demand and the Tyndale Bible.

Both supply and demand can not exist without the other. There is only perfect harmony when supply meets demand. They whole economy revolves around supply and demand since they are the cause for almost everything that happens financially. If there is an unbalance, the society and economy then will be in deep trouble. For example, take the Tyndale Bible (early 1500s); the only reason it was a success was because the supply met the demand. When the Church and King Henry VIII heard that a certain man named, William Tyndale, was illegally printing his English translation of the Latin Bible, they decided to try to buy it out. But as you may suspect, they were actually supporting it since in buying all the copies, the money all went to translation costs. They finally realized that they only way to defeat it was to hope it would eventually disappear on its own. The free market helped to protect it from the overprotection of the Catholic Church.

Superb.

12. Compare "equilibrium" in economics to "equilibrium" in other fields (such as chemistry or physics) or in life itself (such the flow of traffic on highways), using specific examples.

Equilibrium in economics is when the supply meets the demand. It is the perfect balance in the economic world. The right amount of shirts in a store is considered equilibrium because the amount of shirts that people want to buy meets the amount of shirts they have in the store. Equilibrium in biology is the balance within a living organism. The human body is made up of all different parts which are in their own way very important. For example, if one of the organs in our body did not function correctly, we would not be able to survive. The body would be unbalanced and certain bodily functions would not be completed. We could not substitute it with a totally different organ. It would not work because the perfect balance would not be maintained. We were made perfect for our task in the world and if we tamper with that, everything would go wrong.

Terrific essay. Could use as a model.

Well done again! Score: 68/70 plus 40/40 equals 108/110. Congratulations!--Andy Schlafly 17:14, 18 September 2009 (EDT)