DEMAND AND SUPPLY EXERCISES

1.  Below is the demand and supply for wine grapes in Upper Sonomia, a major wine-producing region of Slobovia.

 Price (Per Ton) Quantity Demanded (Tons per Month) Quantity Supplied (Tons per Month) \$40 2000 500 60 1800 600 80 1600 700 100 1400 800 120 1200 900 140 1000 1000 160 800 1100 180 600 1200 200 400 1300

a.  There will be a shortage of wine grapes at any price [above/below] _________ a price of \$ _____.

b.  There will be a surplus of 300 tons when the price is \$ _____.

c.  At a price of \$60, there will be a [surplus/shortage] of _______ tons.

d.  Assume that the government decides to help wine consumers by putting a ceiling of \$100 per ton on grapes.  What would happen?  Would the price ceiling be ineffective or would the price ceiling prevail?

e.  Assume that the government decides to help grape growers by legislating a price floor of \$180 per ton.  What would happen?

f.  If the government were to impose a price ceiling of \$160 per ton, what would happen?

2.  Does each of the following events INCREASE, DECREASE, or HAVE NO EFFECT on the DEMAND or SUPPLY of wine in the short run?  Which way does the DEMAND/SUPPLY curve shift?  What determinant has changed?

EXAMPLE:

EVENT:  The price of beer increases.
ANSWER:  The demand for wine will increase.  It shifts to the right. Beer and wine are substitute goods.  When the price of a substitute good falls, the demand for the other good increases.

a.  EVENT:  Government statistics show that average household income is rising.

b.  EVENT:  Because of advances in gene splicing technology, new healthier varieties of grapes are developed.

c.  EVENT:  A private research institute announces that people who drink a glass of wine a day have fewer heart attacks.

d. EVENT:  The price of cheese increases.

e.  EVENT:  There is a very rainy season causing many grapes to rot on the vine before they have matured.