Problem Set 3
6. Dairies make low-fat milk from full-cream milk, and in the process, they
produce cream, which is made into ice cream. The following events occur one
at a time:
(i) The wage rate of dairy workers rises.
the supply of low-fat milk decreases bc the cost of production increases
(ii) The price of cream rises.
increases
(iii)The price of low-fat milk rises.
quantity supplied increases, not the actual supply
(iv) With a drought forecasted, dairies raise their expected price of low-fat
milk next year.
decreases
(v) New technology lowers the cost of producing ice cream.
increases
Explain the effect of each event on the supply of low-fat milk.
Quantity Quantity
7. The demand and supply schedules Price demande supplied
for gum are in the table. d
a. Suppose that the price of gum is (cents per (millions of packs a
70¢ a pack. Describe the pack) week)
situation in the gum market and 20 180 60
explain how the price adjusts. 40 140 100
The price need to decrease in 60 100 140
order to increase the demand 80 60 180
and reach to the equilibrium.
b. Suppose that the price of gum is 30¢ a pack. Describe the situation in the
gum market and explain how the price adjusts.
The Price need to increase until we get to equilibrium.
8. The following events occur one at a time:
(i) The price of crude oil rises.
Supply going to decrease
(ii) The price of a car rises.
Supply going to decrease
(iii) All speed limits on highways are abolished.
Supply going to increase
(iv) Robots cut car production costs.
Supply going to increase
Explain the effect of each of these events on the market for gasoline.
9. In Problem 7, a fire destroys some factories that produce gum and the quantity
of gum supplied decreases by 40 million packs a week at each price.
a. Explain what happens in the market for gum and draw a graph to illustrate
the changes.
The supply curve will shift towards left.
b. If, at the time as the fire the teenage population increases, and the quantity
of gum demanded increases 40 million packs a week at each price. What is
the new market equilibrium? Show the changes on your graph.
Equilibrium price increased from $50 to $70, but equilibrium quantity is
uncertain
EQUILIBRIUM 2
90
80
70
60 DEMAND
Axis Title
50 Linear (DEMAND)
40 SUPPLY
30 Linear (SUPPLY)
20
10
0
0 50 100 150 200 250
Axis Title
EQULIBRIUM 1
90
80
70
60
DEMAND
50
Linear (DEMAND)
PRICE
40 SUPPLY
Linear (SUPPLY)
30
20
10
0
40 60 80 100 120 140 160 180 200
QUANTITY (millions of packs a week)