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Chapter 2: Q8 (page 78)
Does a price ceiling change the equilibrium price?
no change in equilibrium price. the eqilibrium shifts to right due to change in demand.
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The rent control agency of New York City has found that aggregate demand is QD = 160 - 8P. Quantity is measured in tens of thousands of apartments. Price, the average monthly rental rate, is measured in hundreds of dollars. The agency also noted that the increase in Q at lower P results from more three-person families coming into the city from Long Island and demanding apartments. The city鈥檚 board of realtors acknowledges that this is a good demand estimate and has shown that supply is QS = 70 + 7P.
If both the agency and the board are right about demand and supply, what is the free-market price? What is the change in city population if the agency sets a maximum average monthly rent of \(300 and all those who cannot find an apartment leave the city?
Suppose the agency bows to the wishes of the board and sets a rental of \)900 per month on all apartments to allow landlords a 鈥渇air鈥� rate of return. If 50 percent of any long-run increases in apartment offerings comes from new construction, how many apartments are constructed?
A tariff is a tax on imported goods. Suppose the U.S. government cuts the tariff on imported flat screen
televisions. Using the four-step analysis, how do you think the tariff reduction will affect the equilibrium price and
quantity of flat screen TVs?
Many changes are affecting the market for oil. Predict how each of the following events will affect the equilibrium
price and quantity in the market for oil. In each case, state how the event will affect the supply and demand diagram.
Create a sketch of the diagram if necessary.
a. Cars are becoming more fuel efficient, and therefore get more miles to the gallon.
b. The winter is exceptionally cold.
c. A major discovery of new oil is made off the coast of Norway.
d. The economies of some major oil-using nations, like Japan, slow down.
e. A war in the Middle East disrupts oil-pumping schedules.
f. Landlords install additional insulation in buildings.
g. The price of solar energy falls dramatically.
h. Chemical companies invent a new, popular kind of plastic made from oil.
Suppose the demand curve for a product is given byQ= 300 - 2P+ 4I, whereIis average income measured in thousands of dollars. The supply curve isQ= 3P- 50.
a. IfI= 25, find the market-clearing price and quantity for the product.
b. IfI= 50, find the market-clearing price and quantity for the product.
c. Draw a graph to illustrate your answers.
Example 2.9 (page 76) analyzes the world oil market. Using the data given in that example:
a. Show that the short-run demand and competitive supply curves are indeed given by
D = 36.75 - 0.035P
SC= 21.85 + 0.023P
b. Show that the long-run demand and competitive supply curves are indeed given by
D = 45.5 - 0.210P
SC= 16.1 + 0.138P
c. In Example 2.9 we examined the impact on price of a disruption of oil from Saudi Arabia. Suppose that instead of a decline in supply, OPEC production increases by 2 billion barrels per year (bb/yr) because the Saudis open large new oil fields. Calculate the effect of this increase in production on the price of oil in both the short run and the long run.
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