ECON 100 Supply and Demand Answers

St. Charles County Community College
ECON 100 Survey Economics
Answers to Class Discussion Questions

  1. Consider the following data concerning the quantity of large eggs (in dozens) demanded and supplied per month at a number of prices.

    Price per dozen [1]
    Quantity Demanded Quantity Supplied
    86¢  39,000  93,000 
    76¢  48,000  86,000 
    66¢  58,000  78,000 
    56¢  67,000  67,000 
    46¢  75,000  62,000 
    39¢  81,000  59,000 
    1. What combination of price and quantity brings this market into equilibrium?
      Answer: 56¢.A market is in equilibrium when the quantity demanded equals the quantity supplied. In this case, that equilibrium exists where the price is 56¢ per dozen.
    2. What do you predict will happen if the price drops to 39¢ per dozen?
      Answer: At 39¢ per dozen the quantity demanded will exceed the quantity supplied by 22,000 dozen. There will be temporary situation of excess demand, and the price will rise to the equilibrium price.
    3. What do you predict will happen if the price rises to 66¢ per dozen?
      Answer: At 66¢ per dozen the quantity supplied will exceed the quantity demanded by 20,000 dozen.There will be an excess supply, and the price will fall to the equilibrium price.
    4. Explain what would happen if there was a major freeze in Georgia and Delaware which killed enough laying hens to decrease the monthly production (at each price) by 20,000 dozen?
      Answer: Subtract 20,000 dozen from the quantities supplied at each price, and you will see that quantity supplied equals the quantity demanded at 66¢ per dozen. If 20,000 dozen eggs are removed from the market, the price will rise to 66¢ per dozen.

  2. Yummy Bagel is a normal good that is produced and sold by the Yummy Bagel Bakery.Explain what will happen to the equilibrium price and quantity of Yummy Bagels in each of the following scenarios:

    1. Yummy Bagel Bakery buys new, high technology dough preparation equipment and new computer controlled ovens for its bakeries.
      Answer: Technology is normally bought by firms to lower their cost of production. The lowering of costs will move the supply curve to the right, thereby lowering price and causing the quantity demanded and the quantity supplied both to increase. The demand curve will be unaffected.

    2. Sales increase when it is noticed by a local health expert in a health conscious community that Yummy Bagels contain higher nutritional value than competing bagels.
      Answer: Increasing sales normally indicates that the demand for a product has increased. Since nothing is mentioned about a price increase, we can assume that the new demand is as a result of a change in taste and preferences. The demand curve will shift to the right, the price will increase, and the quantity demanded and the quantity supplied will both increase. The supply curve will be unaffected.

      Demand Up Supply NC
    3. Good Morning Bakery, a local competitor, drops the price of their bagels.
      Answer: When a competitive product drops its price, the demand for the original product will decrease.The demand curve will shift to the left, the price will fall, and the quantity demanded and the quantity supplied will both decrease. The supply curve will be unaffected.

      Demand Down Supply NC
    4. The local automobile assembly plant which hires many of Yummy Bagel’s customers lays off some employees due to a mild recession and the community’s average income decreases.
      Answer: The problem states that Yummy Bagels are a normal good. Therefore, when incomes of consumers purchasing normal goods decrease, their demand for those normal goods will also decrease. The price will fall, the quantities demanded and quantities supplied will both decrease. The supply curve is unaffected.

      Demand Down Supply NC
    5. The cost of flour used in Yummy Bagels increases significantly.
      Answer: When the cost of a production input increases, the cost of production increases. When the cost of production increases, the supply curve shifts to the left. The price will increase, and the quantity demanded and the quantity supplied will both decrease.The demand curve will not be affected.


  3. Marco Manitti sells pizza by the slice at a popular ski resort. He completes with other vendors at that site who sell other prepared food and snack food items. How will each of the following scenario changes affect the demand for Marco’s pizza slices?

    1. The cost of natural gas for his pizza ovens increases dramatically.
      Answer: When the cost of a production input increases, the cost of production increases. When the cost of production increases, the supply curve shifts to the left. The price will increase, and the quantity demanded and the quantity supplied will both decrease.The demand curve will not be affected.

    2. Taco vendors, Marco’s competitors, dramatically drop the cost of their tacos.
      Answer: When a competitive product drops its price, the demand for the original product will decrease.The demand curve will shift to the left, the price will fall, and the quantity demanded and the quantity supplied will both decrease. The supply curve will be unaffected.

    3. Heavy snows attract record numbers of skiers to the ski resort.
      Answer: We can assume that heavy snows at a ski resort will attract more customers for all of the vendors.The demand curve will shift to the right because of additional “demanders”. The price will increase, and quantity demanded and the quantity supplied will both increase. The supply curve will not be affected.


  4. How will each of the following scenario changes affect the supply of ice cream cones?

    1. There is an increase in the cost of cones used in ice cream cones.
      Answer: The cones used in ice cream cones are a component or an input for ice cream cones.  When the cost of a production input increases, the overall cost of production increases.  When the cost of production increases, the supply curve shifts to the left.  The price will increase, and the quantity demanded will increase.
    2. There is an increase in the price of ice cream cones.
      Answer: This is a question in which the student is given a result and then asked to explain why the result took place. There are two reasons why prices increase: (1) demand increases , and (2) supply decreases.
    3. Producers discover that the price of ice cream sundaes is increasing.
      Answer: Remember that the question concerns ice cream cones, and not ice cream sundaes.  If producers discover that demand for ice cream sundaes is increasing, they will transfer the ice cream that would have been used for ice cream cones over to sundaes causing a shortage if inputs for cones.  Therefore, the supply curve for ice cream cones will shift to the left.

 

 


[1]  According to the Wall Street Journal, Page C11, 12/28/01, the U.S.D.A. egg price for the previous day on the commodity market as 56¢ per dozen.