Economics Homework Two Answers - Student Five

Economics lecture 2 James G.

1\. The supply of a good, and the demand for that good, determines both the price and quantity that the good is sold for.

Correct.

2\. Q.) 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? ` A) The good will be sold at about $18 at a quantity of 12.

Correct again, but note that in a free market the price and quantity will be exactly what you say, not "about". In the real world where there are imperfections and regulations, your use of the qualifier "about" is correct.

3\. Q.A) 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?

A.A)When the scarcity of oil decreases, the price of the good drops as well.

Q.B) When the demand for a good or service increases, such as more people driving cars that need gasoline, what happens to the market price of oil?

A.B)When the demand for oil increases, the market supply and price will increase.

Excellent.

4\. Q.) Why do grocery stores lower the price of their fruit 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.

A) No one wants to buy rotten fruit. A grocery store reduces the price of their fruit when they have an oversupply. As a result, people buy their fruit faster so they don’t rot and go to waste. The result is that due to the downward slope of the demand curve the fruit will sell faster.

Superb.

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 the entire 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? A.A) It makes good economic sense to build 600 seats because the supply would meet the demand. The stadium would receive about $3000 a game. A.B) If the City of New York passed a law for a price control of $2 per obstructed view bleacher ticket the amount of tickets sold would sky rocket and there would be a huge wait list.

"A" is correct, but "B" is slightly off: the amount of tickets sold might not skyrocket if the Yankees already sell out. But there would be a much bigger wait list, just as you say.

6\. Q.) "Time is money." Explain. A) The idea of time is money is very simple. The amount of time you waste could be used to earn money. An example would be reading these answers. During the time you spent reading theses answers you could have earned at least $7 working at Burger King.

Ha ha ha. Clever answer but there's no way I would include this in my model answers! Imagine the opportunity cost of doing that, compared to including an answer that promotes this course better!  :=-)

7. Q) 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.

A) When the government forces prices of a service or good, people want to buy the item, but no one wants to make the product because they can’t get a good profit from the item causing waiting lists to form.

Excellent.

Superb answers, with cleverness as a bonus! 70/70. Congratulations.--Andy Schlafly 10:29, 20 September 2009 (EDT)