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.

YOUR TURN:

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

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

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

d. EVENT:  The price of cheese increases.
ANSWER:

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

f.  EVENT:  The government begins paying a $.50 per pound subsidy to wine producers.
ANSWER:
 

3.  This exercise is designed to help you recognize how activity in one market affects what happens in other markets.  In the blanks provided, indicate whether demand, supply, equilibrium price, and equilibrium quantity increase (+), decrease (-), or do not change (0).  If the effect cannot be determined from the information given, use (U).  You should use a supply and demand diagram to help you derive the answers to the questions.  The first one is done for you.
 
 
MARKET
EVENT
D
S
P
Q
a.  Glass Plastic is found to be a cheap substitute for glass in the manufacturing of soft drink containers  -   0   -   - 
b.  Poultry Fish becomes scarce and costly AND a university research group invents a quicker way to process chicken.        
c.  Hamburger buns The price of hamburger decreases because of an increase in the supply of beef         
d.  Corn The development of a more effective insecticide for killing rootworm (an insect which destroys corn plants)        
e.  Used clothing A decrease in consumers' incomes        
f.  Train Transportation   Competition among airlines causes a reduction in air fares        
g.  Lettuce An increase in the price of irrigation equipment        
h.  Oranges A freeze in Florida