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Chapter 3: Q 12. (page 78)
What determines the level of prices in a market?
Demand and supply determine the level of prices in a market.
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In an analysis of the market for paint, an economist discovers the facts listed below. State whether each of these changes will affect supply or demand, and in what direction.
a. There have recently been some important cost-saving inventions in the technology for making paint.
b. Paint is lasting longer, so that property owners need not repaint as often.
c. Because of severe hailstorms, many people need to repaint now.
d. The hailstorms damaged several factories that make paint, forcing them to close down for several months.
Review Figure 3.4 again. Suppose the price of gasoline is \(1.00. Will the quantity demanded to be lower or higher than at the equilibrium price of \)1.40 per gallon? Will the quantity supplied be lower or higher? Is there a shortage or a surplus in the market? If so, of how much?
Explain why the following statement is false: 鈥淚n the goods market, no seller would be willing to sell for less than the equilibrium price.鈥�
How does one analyze a market where both
demand and supply shift?
If the price is above the equilibrium level, would you predict a surplus or a shortage? If the price is below the equilibrium level, would you predict a surplus or a shortage? Why?
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