Microeconomics 4th edition besanko download

Suppliers have made available more units than consumers are willing to purchase at the high price. This creates pressure for the price to decrease — buyers can get away with paying less because sellers are happy to find a buyer at all, and sellers are willing to sell for less wanting to make sure they find a buyer. As the price decreases, the quantity demanded will go up while at the same time the quantity supplied will decrease, returning the market to equilibrium.

Use supply and demand curves to illustrate the impact of the following events on the market for coffee: a The price of tea goes up by percent. How much demand for coffee increases, depends on how sensitive coffee demand is to the price of tea cross-price elasticity.

This will result in the same figure as that for part c. Suppose we observe that the price of soybeans goes up, while the quantity of soybeans sold goes up as well. Use supply and demand curves to illustrate two possible explanations for this pattern of price and quantity changes.

Any factor increasing demand and leaving the remainder of the market unchanged will increase both market price and quantity sold. If demand were to increase at the same time as supply changed, both market price and quantity sold could increase if the change in demand is large relative to the change in supply in either direction.

A 10 percent increase in the price of automobiles reduces the quantity of automobiles demanded by 8 percent. What is the price elasticity of demand for automobiles? Explain why we might expect the price elasticity of demand for speedboats to be more negative than the price elasticity of demand for light bulbs.

Speedboats could probably be categorized as a luxury item whereas light bulbs are more likely categorized as a necessity. For the necessity, the change in quantity demanded will be relatively small for any percent change in price.

The change in quantity demanded may be quite large, however, for a luxury item. Since the percent change in quantity demanded is likely higher for the luxury item for any given percent change in price, the elasticity of demand would be less more negative. Many business travelers receive reimbursement from their companies when they travel by air, whereas vacation travelers typically pay for their trips out of their own pockets.

How would this affect the comparison between the price elasticity of demand for air travel for business travelers versus vacation travelers? Because business travelers receive reimbursement for expenses, they will probably be less sensitive to price changes than the vacation traveler who pays out of her own pocket. Explain why the price elasticity of demand for an entire product category such as yogurt is likely to be less negative than the price elasticity of demand for a typical brand such as Dannon within that product category.

If the prices for a particular product, such as Dannon, within a product category changes say it increases then it is easy for a consumer to switch to another brand, implying a relatively high percent change in quantity demanded for the product.

On the other hand, if prices for the entire product category change, substitutes are not as easily found and the percent change in quantity demanded for the category will be relatively lower. This implies the elasticity for the entire product category will be higher less negative than the elasticity for a single product. What does the sign of the cross-price elasticity of demand between two goods tell us about the nature of the relationship between those goods?

Since they are moving in the same direction, the product must be substitutes. Take coffee and tea for example; if the price of tea increases, the quantity of coffee demanded will increase.

When the cross-price elasticity is negative, QA and PB are moving in the opposite direction, implying the products are complements. Take coffee and cream for example; if the price of cream increases, the quantity of coffee demanded will decrease. Explain why a shift in the demand curve identifies the supply curve and not the demand curve. As the demand curve shifts, the market will reach a new equilibrium.

Each new equilibrium occurs at a new price and quantity. Thus, in order to identify the market supply curve one needs to observe shifts in the demand curve. Solutions to Problems 2. Are beer and nuts demand substitutes or demand complements?

Beer and nuts are demand complements. In this equation, P denotes the price of one bagel in dollars. The demand curve for ice cream in a small town has been stable for the past few years. For one month the price of materials used to make ice cream increased, shifting the supply curve to the left.

With these data draw a graph of a linear demand curve for ice cream in the town. At what price would the demand be unitary elastic?

Using the data from the problem we can graph the demand curve. Based on the data from the problem the graph of the demand curve is. Granny knows that the demand curve for her pies does not shift over time, but she wants to learn more about that demand.

She has tested the market for her pies by charging different prices. We can determine the value of A using any one of the three data points on the demand curve. Every year there is a shortage of Super Bowl tickets at the official prices P0. Generally, a black market known as scalping develops in which tickets are sold for much more than the official price.

Use supply and demand analysis to answer these questions: a What does the existence of scalping imply about the relationship between the official price P0 and the equilibrium price? This is a situation of excess demand and the official price must be below the equilibrium price.

Thus the equilibrium price would remain unchanged. You learn that over the last 10 years, cherry prices have risen, while the quantity of cherries purchased has also risen. This seems puzzling because you learned in microeconomics that an increase in price usually decreases the quantity demanded.

What might explain this seemingly strange pattern of prices and consumption levels? This could occur as a result of the demand curve shifting to the right, increasing both equilibrium price and quantity. This would not contradict what was learned regarding downward sloping demand curves. Yet, the quantity of corn sold by producers decreased. Does this contradict the law of supply? If not, why not? This does not contradict the law of supply. For example, farmers may have experienced something that shifted the supply curve for corn leftward such as a flooding or a drought.

This would have the effect of increasing the equilibrium price of corn, while decreasing the quantity of corn sold by producers. This is shown in the figure below. Another possibility is that Or, alternatively, the supply curve for corn could have shifted leftward, and the demand curves for could have also shifted, but in such a way that the overall effect is to increase the equilibrium price and decrease the equilibrium quantity.

These cases are also shown in the figure below. The law of demand states that, holding other factors fixed, there is an inverse relationship between price and quantity demanded, i. If a good has a positive price elasticity of demand, it must be that an increase in the price.

Therefore, such a good violates the law of demand. The demand for corn depends on the price of corn and the level of disposable income I. An increase in rainfall will increase supply, lowering the equilibrium price and increasing the equilibrium quantity.

A decrease in disposable income will reduce demand, shifting the demand schedule left, reducing both the equilibrium price and quantity. What will happen to the equilibrium price?

What will happen to the equilibrium quantity of Maris baseball cards bought and sold? Q b The renewed interest will shift demand to the right, raising the equilibrium price.

Since supply is perfectly inelastic and therefore vertical there will be no change in the quantity supplied; the quantity is fixed. How much steel will be demanded in ?

What is the price elasticity of demand, given market conditions in ? This is the equation for the demand curve for steel in France. When the price of steel is 10, the quantity of steel demanded is thus From equation 2. Suppose that in , the global market for hard drives for notebook computers consists of a large number of producers.

It is relatively easy for new producers to enter the industry, and when the market for notebook hard drives is booming, new producers do, in fact, enter. Therefore, the firm should expect a level of output such that its revenue at a price of. At the other quantities the revenue would rise.

Over that range of prices, her monthly total expenditure on ice cream increases as the price decreases. What does this imply about her price elasticity of demand for ice cream? What does the sign of this elasticity tell you about whether golf balls and titanium are substitutes or complements? The negative sign indicates that titanium and golf balls are 46 complements, i.

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