Lecture Notes: Exercises on Supply and Demand (Market Equilibrium, Price Ceilings, Pork Demand)

Flashcards cover key concepts from the notes: calculating equilibrium, effects of a binding price ceiling, determining traded quantity under ceilings, and interpreting the pork demand function with respect to income and prices of related goods.

What are the equilibrium price and quantity when Qs = 4 + 2P and QD = 100 − 2P?

P* = 24 and Q* = 52.

If a binding price ceiling of P = 20 is imposed on the market with the given equations, what are QD and QS at P = 20, and what happens to traded quantity?

QD = 60, QS = 44; there is a shortage of 16 units. Without rationing, the traded quantity equals 44 (the supply).

Under a binding price ceiling with no rationing, how is the actual traded quantity determined?

The traded quantity is the short side of the market, i.e., min(QD, QS); in this example, 44 units.

In the pork demand function Q = 161 − 20p + 20pb + 3pc + 0.002Y, what is the effect on Q of a 90-unit increase in Y?

ΔQ = 0.002 × 90 = 0.18 million kg (increase).

In the same pork demand function, what is the effect on Q of a 20-unit increase in pb (the price of beef)?

ΔQ = 20 × 20 = 400 (million kg) increase; pork demand rises with a higher beef price (substitute relationship).

Which of the following factors causes a shift in the demand curve for a textbook? (list all that apply)

c) a drop in the price of a competing textbook; d) an increase in the number of students; e) the publication of a new textbook in the field.

What is the difference between a movement along the demand curve and a shift in the demand curve?

A movement along the curve is caused by a change in the good’s price; a shift is caused by non-price determinants (income, prices of related goods, number of buyers, etc.).

Under a binding price ceiling with no rationing, what determines the actual quantity traded in the market?

The short side of the market; the traded quantity equals min(QD, QS); e.g., in a shortage scenario it equals QS.

In the pork demand function, what is the sign of the cross-price coefficient for pb, and what does that imply?

The coefficient is +20, implying beef and pork are substitutes; a rise in beef price increases pork demand.

What is the general method for finding the equilibrium price in a market with linear supply and demand functions?

Set Qs = Qd and solve for P; then substitute P back to find Q.