74 PART TWO Price, Quantity, and Efficiency b. If production costs were to increase, the quantities supplied at each price would be as shown by the third column of the table (“S, Quantity Supplied”). Use those data to draw supply curve S, on the same graph as supply curve S, c. In the fourth column of the table, enter the amount by which the quantity supplied at each price changes due to the increase in product costs. (Use positive numbers for increases and negative numbers for decreases.) d. Did the increase in production costs cause a "decrease in supply" or a “decrease in quantity supplied"? 3. Refer to the expanded table below from review question 8. LO3.4 a. What is the equilibrium price? At what price is there nei- ther a shortage nor a surplus? Fill in the surplus-shortage column and use it to confirm your answers. b. Graph the demand for wheat and the supply of wheat. Be sure to label the axes of your graph correctly. Label equi- librium price Pand equilibrium quantity Q. c. How big is the surplus or shortage at $3.40? At $4.90? How big a surplus or shortage results if the price is 60 cents higher than the equilibrium price? 30 cents lower than the equilibrium price? g. Demand increases and supply decreases. h. Demand decreases and supply decreases. 5. Use two market diagrams to explain how an increase in state subsidies to public colleges might affect tuition and enroll- ments in both public and private colleges. LO3.5 6. ADVANCED ANALYSIS Assume that demand for a commod- ity is represented by the equation P = 10 - 2Q, and supply by the equation P = 2 + .2Q,, where Q, and Q are quantity demanded and quantity supplied, respectively, and Pis price. Using the equilibrium condition l, = l, solve the equa- tions to determine equilibrium price. Now determine equi- librium quantity. LO3.5 7. Suppose that the demand and supply schedules for rental apartments in the city of Gotham are as given in the table below. LO3.6 Monthly Rent Apartments Demanded Apartments Supplied 15,000 $2,500 10,000 12,500 2,000 12,500 1,500 15,000 10,000 1,000 17,500 7,500 Surplus (+) 500 20,000 5,000 Thousands of Bushels Demanded or Thousands of Bushels Supplied Price per Bushel Shortage (-) 85 $3.40 72 80 3.70 73 75 4.00 75 70 4.30 77 65 4.60 79 4.90 81 60 keep out the 4. How will each of the following changes in demand and/or supply affect equilibrium price and equilibrium quantity in a competitive market; that is, do price and quantity rise, fall, or remain unchanged, or are the answers indeterminate be- cause they depend on the magnitudes of the shifts? Use sup- ply and demand to verify your answers. LO3.5 a. Supply decreases and demand is constant. b. Demand decreases and supply is constant. c. Supply increases and demand is constant. d. Demand increases and supply increases. e. Demand increases and supply is constant. f. Supply increases and demand decreases. a. What is the market equilibrium rental price per month and the market equilibrium number of apartments de- manded and supplied? b. If the local government can enforce a rent-control law that sets the maximum monthly rent at $1,500, will there be a surplus or a shortage? Of how many units? And how many units will actually be rented each month? c. Suppose that a new government is elected that wants to poor. It declares that the minimum rent that can be charged is $2,500 per month. If the government can enforce that price floor, will there be a surplus or a shortage? Of how many units? And how many units will actually be rented each month? d. Suppose that the government wishes to decrease the mar- ket equilibrium monthly rent by increasing the supply of housing. Assuming that demand remains unchanged, by how many units of housing would the government have to increase the supply of housing in order to get the market equilibrium rental price to fall to $1,500 per month? To $1,000 per month? To $500 per month?
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