02 Jun Question Some students have difficulty understanding the law
Question
Some students have difficulty understanding the laws of supply and demand and the difference
between changes in demand (supply), which are caused by changes in the respective
determinates of demand or supply, and changes in quantity demanded (supplied) which result
from changes in the price of the good or the service.
Before you complete this assignment, I suggest that you again review Chapter 3 and my lecture
material provided this week. There are some basic principles which must be followed when
constructing supply and demand graphs, for example, price is always on the vertical axis and
output (quantity) on the horizontal axis.
I also strongly suggest that you review the website Economic Basics: Demand and Supply and
the videos Supply & Demand Graphing Using Excel and the Macroeconomics for MBA YouTube
Channel, from the Internet which can be found through these links.
If you have questions, remember to post them to the General Questions area of the Discussion
forum.
Problem 1
For each of the following draw a separate diagram to demonstrate the answer. (Hint: Remember
the difference in a change in demand [supply] and a change in quantity demanded [supplied].
Don’t shift both curves unless appropriate). Describe what happens to equilibrium price and
sales. Explain why or why not this makes sense in the real world.
-AShow the effect on the U.S. new construction residential housingMARKET in the event of a
severe economic recession.
-BShow the effect on the U.S. air travelMARKET if American Airlines unexpectedly folds (ceases
operations) overnight.
-CShow the effect on the U.S. domestic carMARKET if the price of foreign cars increases due to an
exchange rate shock.
-DShow the effect on theMARKET for large SUVs if the price of gasoline in the U.S. comes to rest at
greater than $4 per gallon.
-EShow the effect of setting the price of Super Bowl tickets at a price lower than equilibrium price.
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