In Class Activity - Working in Pairs- to be completed as homework.
Set One
A. Using supply and demand analysis explain why the price of roses always seems to rise just before Valentines day.
1. How would a freeze that killed one-half of the rose crop effect the price? Why?
2. What would happen in the market for fine chocolates if one-half of the rose crop freezes? Why?
Or
B. A story on the front page of The Wall Street Journal on October 22, 1996, told about troubles in the Bob Evans Restaurants. The Bob Evans chain, which started as a truckers diner in the late 1940s, currently includes 380 restaurants with annual sales of more than $800 million. However, at the annual shareholders meeting on the family farm, disappointment and anger were the order of the day and the meeting focused on reported declines in the quality of food and service, and on the declining price of the company's stock. In searching for an explanation for the plight of the Bob Evans chain, the Journal noted that, rising hog prices combined with Americans' healthier eating habits have stalled sausage sales, which account for almost 25% of the company's revenue.
1. Use your understanding of supply and demand to analyze the impact of the conditions described in the quotation at the end of the article summary. Which issues effect demand? Which issues effect supply?
2. Hypothesize about the equilibrium price, quantity supplied and quantity demanded this year at Bob Evans as opposed to last year.
Set Two
C. Two years ago the city of Denver had an initiative on the general election ballot, asking voters to raise Denver's minimum wage to 40% above the national minimum wage.
1. How would things in Denver have changed if it had passed? (what would be the same? What would be different?)
2. Predict the effect of this legislation on market(s) for labor in Denver; in the suburbs outside of the city.
3. Where would you rather work? Where would you be most likely to get a job, in or out of the city?
4. Your uncle Charlie is thinking about opening a small restaurant in Denver or the surrounding suburbs. Where would you advise him to open his restaurant, in Denver or in one of the suburbs? Why?
Or
D. Many local governments around the nation are concerned with the problem of teenage smoking. A wide variety of legislation has been passed with the intent of reducing sales of cigarettes to minors among the methods currently in use are:
o requiring a picture ID before purchase;
o banning cigarette machines in public access areas; -moving cigarette machines behind the counter in bars and restaurants;
o fining underage purchasers of cigarettes; and
o fining those who sell cigarettes to minors.
5. Analyze the above options in terms of their cost. ( What is the cost and who bears it?)
6. Predict the impact of each option on the demand, supply, and price in the market for cigarettes.
7. Can you separate these impacts for teenagers and adults? Which impacts would be the same, which impacts would be different?
8. What is the difference in market impacts of fining the buyer vs. ,fining the seller of cigarettes?
Set Three
E. The Dutch city of Amsterdam has had effective rent control since the Second World War. Despite its considerable charm, Amsterdam has many decaying and burned-out buildings. This is surprising, since everyone agrees that there is a severe housing shortage in Amsterdam. Connie is a women who lives in a rent-controlled apartment building facing a canal. A few years ago Connie paid a plumber to install a shower in her apartment after years of futile requests to her landlord for a shower. If she leaves the apartment (which she is unlikely to do), she expects to charge the incoming tenant for the shower.
0. What is meant by a "shortage" of housing? Can you illustrate a shortage situation on a supply and demand graph?
1. Using supply-demand analysis, can you give a plausible reason why Connie's landlord would be so unresponsive to her requests for a shower?
2. Why didn't Connie just get mad and move rather than paying for the shower herself?
3. Can supply, demand, and price analysis help to explain why there are a number of decaying and burned-out buildings in Amsterdam?
Or
(to focus specifically on marginal analysis).
F. Suppose you run a lawn mowing business: you charge $15 per lawn and you can mow five lawns in an eight hour day. You currently have more people asking you to mow their lawns than you can satisfy so you are considering hiring someone to help. Your other option is to buy or rent a riding lawn mower that will enable you to mow seven lawns each day.
You find that your friend Jim, a good worker, will work for $8 per hour or you can rent a riding mower for $100 per week plus $25 for gas and oil. You estimate that you can sign up an additional 25 customers.
0. Should you hire Jim or rent the mower and do the work yourself? Which would be more profitable?
1. What if the mower enabled you to mow eight lawns per day, would your decision be the same?
A major step toward mastering the economic way of thinking is learning to reason in terms of supply and demand. On the questions below, your answers are less important than the reasoning with which you arrive at those answers. Begin by considering the current situation as described in the problem. Does the event described affect supply? demand? both? neither? Does it cause supply or demand to increase? decrease? What effect will the change have on the price and the quantity exchanged in the market? Don't be content merely to conclude that the price will rise or the price will fall. Would you expect a large or a small change in price or in the quantity exchanged? Keep in mind that the answer will often depend on the length of time you are allowing for adjustments to occur. Are you predicting a very short-run effect or are you thinking about the long-run effect? (Some students may find it useful to sketch a small supply and demand graph to guide their thinking.)
Definitions
Demand - The relationship between prices and the corresponding quantities of a good or service buyers are willing to purchase at any given point in time.
Exchange - Trade or voluntary agreements between buyers and sellers.
Marginal analysis - A comparison of the costs and benefits of consuming or producing an additional unit.
Market clearing price (Market Equalibrium) - The price at which all that suppliers are willing to sell equals all that buyers are willing to purchase; the price at which quantity demanded equals quantity supplied; the price that "Clears" the market.
Supply - The relationship of prices to the quantities of a good or service sellers are willing to offer for sale, at any given point in time.
Transaction costs - The resources (like time and energy) that are used in making an exchange. An example of a transaction cost is time spent shopping or the time and energy necessary to negotiate a contract.
Education Gateways makes no warranty for SchoolNotes.com.
Information on this site is generated by the users. The views
expressed are not necessarily those of Education Gateways or its members, and
Education Gateways is not responsible for user's conduct on SchoolNotes.com.
