Assignment: Applying the Supply and Demand Model

The supply and demand model forms the basis of much microeconomic analysis. It combines information about buyers’ preferences for purchasing products or services with information about the sellers’ willingness to supply them. In market-based economies, it is the interaction between buyers and sellers, as illustrated in the demand and supply model, that determines equilibrium prices and output.

For this Assignment, you will apply the concepts of the supply and demand model by explaining aspects of buyer behavior, seller behavior, shifts, and movements along the demand curve, and market equilibrium. You will also calculate the cross elasticity of demand and describe the effects of government intervention in markets.

To prepare for this Assignment:
1. Over the past 10–20 years, the use of landline phones has fallen while the use of cell phones and smartphones has increased. Explain how changes in consumer tastes and preferences are affecting the demand functions for each product. Draw graphs for each of the two products (landlines and cell phones/smartphones) illustrating what has happened to the demand curve for each one. Your response should be at least 75 words (1 paragraph) in length; include graphs to support your explanations.

2. Explain why the law of demand is not violated when you observe the quantity demanded of ice cream cones at your local park is lower in December than in July even though the price is higher in July than it is in December. Your response should be at least 75 words (1 paragraph) in length.

3. This week, Super-Save Supermarket lowered the price of apples from $1 to 90 cents per pound. The quantity of apples sold last week was 200 pounds. This week, the quantity sold was 250 pounds. Calculate the price elasticity of demand. Is it elastic, inelastic, or unitary elastic? What happens to total revenue? Your response should be at least 75 words (1 paragraph) in length.

4. Using the information given in the previous question, assume that last week Super-Save Supermarket sold 150 pounds of bananas and this week it sold 120 pounds of bananas. Are bananas and apples complements or substitutes? What is the cross elasticity of demand? Explain your answer. Your response should be at least 75 words (1 paragraph) in length.

5. Farmer Brown plants both soybeans and corn. If the price of soybeans increases and the price of corn remains the same, what do you expect to happen to the amount of acreage that he devotes to planting each crop? How does your answer help to explain the law of supply? Does the supply curve of corn or soybeans shift? Use graphs to illustrate your answer. Your response should be at least 75–150 words (1–2 paragraphs) in length, including graphs with explanations.

6. Amy’s Diner and Joe’s Burger Stop are located in the same neighborhood. Both have similar menus that include hamburgers, french fries, and soft drinks. Assume Amy’s supplier raises the price of hamburger meat, while Joe’s does not. Using the supply and demand model, graphically show and provide a written explanation for each of the following:
The equilibrium price and quantity of hamburgers Amy sold
The equilibrium price and quantity of french fries Amy sold
The equilibrium price and quantity of hamburgers Joe sold
The equilibrium price and quantity of soft drinks Joe sold
Your response should be at least 150–225 words (2–3 paragraphs) in length, including graphs.

7. In the United States, price floors are commonly used to support farmers, such as for dairy products. Assume several U.S. trading partners impose tariffs on dairy products exported from the United States. The tariffs are effective and are reducing dairy exports from the United States and have pushed the domestic equilibrium price of milk below the price floor. Using a supply and demand model, illustrates what happens to the U.S. domestic price of milk, the quantity of milk sold in the United States, and any surplus or shortage of milk. Be sure to support your graph with a written explanation.
Your response should be at least 75–150 words (1–2 paragraphs) in length, including the graph and explanation.