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Economics
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26 Nov 2019

What is a demand curve?

What is a supply curve?

How does one distinguish between a move along a demand curve and a movement in the demand curve?

How does one distinguish between a move along a supply curve and a movement in the supply curve?

What factors can cause a demand curve to shift toward increased demand?

What factors can cause a supply curve to shift toward increased supply?

How is equilibrium established?

What happens if price is too high or too low?

What is the effect of a government imposed price ceiling (e.g., on gasoline)?

What is the effect of a government imposed price floor (e.g., on agricultural products)?

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Related questions

A. Think about a product that you have purchased recently (e.g. soda, diapers, takeout meals, milk, shoes, manicure/pedicure, video game, etc.). Explain how the law of demand affected your purchase. Give specific examples of how the determinants of demand and supply affect this product (T-I-P-E-N and P-R-E-S-T). What happens to the demand curve and the supply curve when any of these determinants change? Give examples of scenarios that would cause a change in demand versus a movement along the same demand curve and supply curve for this product. Discuss the new equilibrium price and quantity that result from these changes. Can you demonstrate some of these changes graphically?

B. For your selected product, if the government places a mandated price ABOVE the equilibrium price, how would this affect the market equilibrium?

C. Would you rather have the forces of demand and supply determine the price of gasoline, or would you prefer a government-mandated price ceiling? What problems would a price ceiling on gasoline bring in this market?

Recently the government imposed a new requirement that gasoline contains 10% ethanol; the ethanol is made from corn. This new government ethanol mandate has affected the market for cereal made from corn (such as corn flakes and Captain Crunch).

a) According to the competitive market model, how do the government's new ethanol requirement affect the equilibrium average price and quantity of cereal made from corn in the U.S.? Do corn-based cereal prices rise, or fall, or stay the same? Does the equilibrium quantity of boxes of corn-based cereal rise, or fall or stay the same? Explain your answer carefully.

b) What is the proper way to illustrate the effect of the government's ethanol requirement on the corn-based cereal market? (Does the demand curve shift up/right, or does the demand curve shift down/left, or does the supply curve shift up/left, or does the supply curve shift down/right?

"Shortages, price controls, and queuesDuring the late 1980s and early 1990s, economic reforms initiated  by  Soviet  president  Mikhail  Gorbachev  began  to  raise  consumer  incomes;  however,  the  Soviet  government continued to impose price ceilings on basic goods like food, clothing, and household goods. As higher income led to increased demand, severe shortages of many goods and long lines at all kinds of stores became common. Finally, in January 1992, a new Russian government under president Boris Yeltsin removed retail price controls on most goods. Within a month, prices more than doubled on average, and lines  disappeared.  Analyze  these  events  using  the  supply  and  demand  model.  First  draw  a  supply  and  demand diagram for some normal good such as butter. Show the market in equilibrium at a price of 1 ruble per kilo before the beginning of the Gorbachev reforms. Draw a horizontal line at that level to represent the  price  ceiling;  no  butter  can  be  sold  for  more  than  1  ruble  per  kilo.  Next  show  the  effect  of  rising  income. Does it shift the supply curve? Does it shift the demand curve? What is the shortage or surplus at the controlled price? After the price control ends, assuming no further shift in the supply and demand curve, what happens to the price? What happens to the shortage or surplus?"

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