Week 3 Assignment

1666 words 7 pages
BUSN 5260
Current Economic Analysis
Week 3: Personal Assignment
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
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A) Current equilibrium price is $2.50

B) If supply at every price is reduced by 10 gallons, the new equilibrium price would be $3.00

C) If the government freezes the price of gasoline at its initial equilibrium price a shortage of 10 gallons would exist when supply is reduced.

Problem 3
Refer to Problem 1 on page 76 of the text and determine the size of the market surplus or shortage that would exist at a price of (a) $40 (b) $20. Illustrate your answers on a graph.


Please note that answers below assume we are using the “new demand” curve as identified in figure 3.7 of the text.

A) At a price of $40 a market surplus of approximately 37 hours per semester would exist.

B) At a price of $20 a market shortage of approximately 55 hours per semester would exist.

Problem 4
Refer to Problem 6 on page 77 and the Headline on page 68 of the textbook and show graphically the market situation for Nook e-readers at Christmas 2009.



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