Chapter 5 practice problems Flashcards
Use supply and demand curves to demonstrate why colleges use GPAs, ACTs, and SATs for purposes of admission.
Look at the answer sheet for the chart.
When the price of tuition is set below the equilibrium price, shortages arise which must be allocated using non-price rationing devices.
Use supply and demand curves to demonstrate how people pay for good weather.
The demand for housing in locales with good weather is higher than the demand for housing in locales with bad weather, leading to higher housing prices in good locales. The differential between P2 and P1 is the price people pay for good weather.
Why do some bars offer free peanuts and pretzels to their patrons?
Look at the answers for the chart.
Peanuts and pretzels are considered to be complements to drinks that the bar offers for sale. With complements, the demand for one good rises when the price of the other falls. Therefore, bars offer free peanuts and pretzels which will lead to higher demand and prices for their beer and other drinks.
Graphically show and explain why there is a shortage of classroom space for some college classes and a surplus for others.
Look at the answer sheet for the chart.
In the above figure there is a fixed supply of space, S, for classrooms and a fixed price of P. The demand varies by time period. In period 1, demand is D1. At price P, this demand curve brings a quantity demanded of Q1, but the quantity supplied is fixed at Q2, creating a surplus of space. In period 2, demand is D2. At price P, this demand curve brings a quantity demanded of Q3, but the quantity supplied is fixed at Q2, creating a shortage of space.
Use supply and demand curves to demonstrate the shortage of freeway space during rush hour.
Look at the answer sheet for the chart.
During rush hour, the quantity of freeway space demanded is greater than quantity of freeway space supplied. Therefore, at zero price there is a shortage of freeway space.
Suppose the purchase and sale of marijuana are legalized and the price of marijuana falls. What is the explanation?
The legalization of marijuana increases both the supply and the demand for marijuana. Since the price has decreased, the increase in the supply must have been larger than the increase in demand.
