Exercises: Supply, demand and market equilibrium

Explain what the demand for a good is and state the law of demand. Illustrate it with an example: what happens to concert tickets if their price falls by half?

Explain what supply is and state the law of supply. Why does a farmer bring more strawberries to the market when their price is high?

The figure shows the supply and demand curves for the sandwich market in a city, with the price in monetary units and the quantity in thousands of sandwiches.

1. a) Read the equilibrium price and quantity from the graph.
2. b) Explain what the intersection point of the curves represents.

At a price of $\$80$, students in a city demand $100$ smoothies a day; at $\$120$, only $60$.

1. a) Plot these two points on price and quantity axes (you may draw them) and explain whether they conform to the law of demand.
2. b) State two factors, other than price, that could shift this demand and state in which direction they would do so.

Family income in a neighbourhood rises. Explain, using the supply and demand model, what will happen to the equilibrium in the market for restaurant dinners (a normal good): which curve moves, in which direction, and what happens to the equilibrium price and quantity.

The municipality sets the entrance fee for the municipal swimming pool at $\$40$ when the equilibrium price would be $\$100$.

1. a) Explain, using the model, what imbalance occurs (shortage or surplus) and why.
2. b) What rationing mechanisms might emerge in response to this imbalance? Name two and comment on them.

A festival sells out its $20,000$ tickets at $\$1\,200$ in a few hours and the next day they are resold for $\$3\,000$ on the internet.

1. a) Analyse using supply and demand why reselling occurs.
2. b) Assess two solutions (a higher initial price, named tickets) and their effects on fans and on the organisers.

Every September, thousands of students look for an apartment at the same time in the same university town and rents skyrocket; in June, many apartments are left empty.

1. a) Explain the two seasonal equilibria using shifts in supply or demand.
2. b) Propose two measures (one public and one market-based) to ease the problem and analyze their effects.

A frost destroys half of the strawberry crop just before the peak season.

1. a) Analyse using the model which curve shifts, in which direction, and what happens to the new equilibrium.
2. b) Who gains and who loses from the frost? Consider separately the farmers who saved their crop, those who lost it, and consumers.