Economics Homework Two Answers - Student Four

Anna M

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).

Price and Quantity.

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)?

The good will be sold for $18 at a quantity of 12.

Correct again, but put the dollar sign before the number: $18.

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.

When the supply of oil increases, scarcity decreases and the price is dropped. This is because there is more competition in the market, and oil wells need to charge less than their competition. When the demand for oil increases, the price will increase, because people want to get the most they can for their product.

Excellent.

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 their overstocked fruit because they want more people to buy it so it doesn't spoil and become useless. When the price is lowered, the demand curve will move to the right. After the store lowers its price, the demand increases.

No, the demand curve does not shift simply because the price is lowered. The demand curve describes different demands at different prices. The supply curve shifts right because of the oversupply of ripe fruit, and that results in a lower equilibrium price where the new supply curve meets demand. (Minus 1).

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? (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?

They built 600 seats, since that is where supply equals demand. If the City of New York passed a price control law, the seats would sell out immediately, and there would be a long line for seats. I would oppose a law like this, because it interferes with the free market.

Correct, but you overlooked answer the question of "how much does the team make from sales of these tickets at each game." (Minus 1). Second part is excellent.

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 spent working produces money. Time spent messing around loses money. So, time is not literally money, but time can be spent making money.

Right.

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.)

Demand exceeds supply. When more people can go to the hospital for little or no money, they will. You'll end up with people going for a cold, because they can.

Excellent.

Well done! 68/70.--Andy Schlafly 10:14, 20 September 2009 (EDT)