Chapter 4: Q. 25 (page 105)
If the government imposed a federal interest rate ceiling of 20% on all loans, who would gain and who would lose?
If the government imposed a federal interest rate of 20% on all loans, then borrowers (companies and individuals) would gain and lenders (banks and other lenders) would lose.
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Why are the factors that shift the demand for a product different from the factors that shift the demand for labor? Why are the factors that shift the supply of a product different from those that shift the supply of labor?
Table 4.6 shows the amount of savings and borrowing in a market for loans to purchase homes, measured in millions of dollars, at various interest rates. What is the equilibrium interest rate and quantity in the capital financial market? How can you tell? Now, imagine that because of a shift in the perceptions of foreign investors, the supply curve shifts so that there will be $10 million less supplied at every interest rate. Calculate the new equilibrium interest rate and quantity, and explain why the direction of the interest rate shift makes intuitive sense.
| Interest rate | Qs | Qd |
| 5% | 130 | 170 |
| 6% | 135 | 150 |
| 7% | 140 | 140 |
| 8% | 145 | 135 |
| 9% | 150 | 125 |
| 10% | 155 | 110 |
Table 4.6
In the labour market, what causes a movement along the demand curve? What causes a shift in the demand curve?
Predict how each of the following events will raise or lower the equilibrium wage and quantity of oil workers in Texas. In each case, sketch a demand and supply diagram to illustrate your answer.
a. The price of oil rises.
b. New oil-drilling equipment is invented that is cheap and requires few workers to run.
c. Several major companies that do not drill oil open factories in Texas, offering many well-paid jobs outside the oil industry.
d. Government imposes costly new regulations to make oil-drilling a safer job.
What happens to the price and the quantity bought and sold in the cocoa market if countries producing cocoa experience a drought and a new study is released demonstrating the health benefits of cocoa? Illustrate your answer with a demand and supply graph.
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