Homework 1

The Market for Chocolate Chip Cookies and Other Things

 

 

1. The demand for chocolate chip cookies in the Capital District is given by equation 1, where Qd is the quantity of cookies demanded in a year (in millions), and P is the price per cookie (in dollars). 

 

                                                Qd = 8 - 30*P                                                  (1)

 

           

The supply of  chocolate chip cookies is given by equation 2, where Qs is the quantity of cookies supplied (in millions):

 

                                                Qs = -2 + 20*P                                               (2)

 

 

 

 

a.      Draw the demand curve and the supply curve for chocolate chip cookies, labeling your axes and the curves.  (Put P on the vertical axis, Q on the horizontal axis. Substitute values for P (start with $.10 and use increments of $.10) and solve for Qd and Qs.)

 

b.      Show the equilibrium price and quantity by drawing dashed lines from the equilibrium to each axis and labeling the points on the axes.               

                         

a.      Suppose that increases in income shift the demand curve such that, at each price, the quantity demanded has increased by 2.5 million cookies.  Draw the new demand curve (on the same graph) and show the new equilibrium price and quantity.

 

b.      Suppose that an increase in the price of chips causes a shift in the supply curve such that, at each price, the quantity supplied has been reduced by 2.5 million cookies.  Using the demand curve in part (c) above, show the new equilibrium price and quantity.

             

 

2.  Draw a supply curve and a demand curve diagram for beef.  Be sure to label your diagram well.  (Do not be concerned with the numbers just draw a downward sloping demand and an upward sloping supply.)   Then trace the effect  of each event below on either the supply curve or the demand curve for beef.  Show the impact of this event on the equilibrium price and quantity (Draw in the dashed lines to the axes.)  Briefly explain why equilibrium changed--what forces caused the price and quantity to change?  (Analyze each event on a separate graph.)

 

a.      Concerns about mad cow disease lead many consumers to switch from beef to chicken.

 

b.      A bumper grain crop reduces the cost of for cattle.

 

c.      A deep freeze kills large numbers of chickens.

 

d.      An increase in income occurs.