Chapter 3: Q 1 (page 77)
Suppose the price of gasoline is \(1.60 per gallon. Is the quantity demanded higher or lower than at the equilibrium price of \)1.40 per gallon?
Equilibrium isthe state in which market supply and demand balance each other, and as a result prices become stable.
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What is the difference between the supply and
the quantity supplied of a product, say milk? Explain
in words and show the difference on a graph with the
supply curve for milk.
What causes a movement along the demand curve?
What causes a movement along the supply curve?
How does a price floor set above the equilibrium
level affect quantity demanded and quantity supplied?
Many changes are affecting the market for oil. Predict how each of the following events will affect the equilibrium price and quantity in the market for oil. In each case, state how the event will affect the supply and demand diagram. Create a sketch of the diagram if necessary.
a. Cars are becoming more fuel efficient, and therefore get more miles to the gallon.
b. The winter is exceptionally cold.
c. A major discovery of new oil is made off the coast of Norway.
d. The economies of some major oil-using nations, like Japan, slow down.
e. A war in the Middle East disrupts oil-pumping schedules.
f. Landlords install additional insulation in buildings.
g. The price of solar energy falls dramatically.
h. Chemical companies invent a new, popular kind of plastic made from oil.
Use the four-step process to analyze the impact
of a reduction in tariffs on imports of iPods on the
equilibrium price and quantity of Sony Walkman-type products.
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