Additional Problem #1: Market Analysis
1
Additional Problem 1: Market Analysis (Answer Key)
Use the information in the table to answer the following questions.
Tom’s Demand / Dick’s Demand / Harry’s DemandBeer Price
(per 6 pack) / Quantity of
Beer Demanded / Beer Price
(per 6 pack) / Quantity of
Beer Demanded / Beer Price
(per 6 pack) / Quantity of
Beer Demanded
$10 / 0 / $10 / 1 / $10 / 0
9 / 0 / 9 / 3 / 9 / 1
8 / 0 / 8 / 5 / 8 / 5
7 / 1 / 7 / 7 / 7 / 8
6 / 2 / 6 / 9 / 6 / 11
5 / 4 / 5 / 12 / 5 / 12
4 / 6 / 4 / 15 / 4 / 15
3 / 10 / 3 / 18 / 3 / 18
2 / 15 / 2 / 21 / 2 / 20
1 / 21 / 1 / 24 / 1 / 23
0 / 25 / 0 / 25 / 0 / 25
- Draw Tom, Dick, and Harry’s individual demand curves for beer. Use graph paper to aid your construction.
Tom’s Demand Curve Dick’s Demand Curve
P P
10 10
8 8
6 6
4 4
2 2
D D
0 5 10 15 20 25 30 Q 0 5 10 15 20 25 30 Q
Harry’s Demand Curve
P
10
8
6
4
2 D
0 5 10 15 20 25 30 Q
- Draw the market demand curve for beer assuming that Tom, Dick, and Harry are the only consumers in the market.
Market Demand Curve
P / QT$10 / 1
9 / 4
8 / 10
7 / 16
6 / 22
5 / 28
4 / 36
3 / 46
2 / 56
1 / 68
0 / 75
P
10
8
6
4
2 DT = Market Demand
0 10 20 30 40 50 60 70 80 Q
- Assume that demands for beer by Tom and Dick double, and is cut in half for Harry. Redraw each individual’s demand curve and then redraw the market demand curve.
Tom’s New D = D′
P / Q
$10 / 0
9 / 0
8 / 0
7 / 2
6 / 4
5 / 8
4 / 12
3 / 20
2 / 30
1 / 42
0 / 50
Tom’s Demands
P
10
8
6
4
D′
2 D
0 5 10 15 20 25 30 Q
Dick’s New D = D′P / Q
$10 / 2
9 / 6
8 / 10
7 / 14
6 / 18
5 / 24
4 / 30
3 / 36
2 / 42
1 / 48
0 / 50
Dick’s Demands
P
10
8
6
4D′
2
D
0 5 10 15 20 25 30 Q
Harry’s New D = D′P / Q
$10 / 0
9 / .5
8 / 2.5
7 / 4
6 / 5.5
5 / 6
4 / 7.5
3 / 9
2 / 10
1 / 11.5
0 / 12.5
Harry’s Demands
P
10
8
6
4
2
D′ D
0 5 10 15 20 25 30 Q
Market Demand (QT)= sum of quantity demanded for Tom, Dick, and Harry at each price so that QT = QTOM + QHARRY + QDICK
New Market DT′P / QT′
$10 / 2
9 / 6.5
8 / 12.5
7 / 20
6 / 27.5
5 / 38
4 / 49.5
3 / 65
2 / 82
1 / 101.5
0 / 112.5
Market Demand Curves
P
10
8
6
4
DT′
2 DT
0 10 20 30 40 50 60 70 80 Q
- Offer several explanations as to why Tom and Dick’s demands double for beer.
(a)Tom and Dick’s income increase. (Beer is a superior/normal good to each)
(b)Tom and Dick’s preferences for beer increase.
(c)Price of a complementary good goes down, i.e. happy hour food prices.
(d)Price of a substitute good goes up, i.e. well drinks, wine.
(e)Tom and Dick’s expectation that beer prices will rise in the future.
(f)Tom and Dick’s expectation that their incomes will rise in the future.
(g)Tom and Dick’s expectation that the quantity of beer will fall in the future.
- Offer several explanations as to why Harry’s demand for beer is cut in half.
a)Harry’s income goes down. (Beer is a superior/normal good).
b)Harry’s taste and preferences for beer goes down.
c)Price of a complementary good goes up, i.e. happy hour food prices.
d)Price of a substitute good goes down, i.e. well drinks, wine.
e)Harry’s expectation that beer prices will fall in the future.
f)Harry’s expectation that his income will fall in the future.
- Now consider the following graph for the market demand for beer. Assume that the initial market demand is D0[CoLH1].
PriceNote : Move from a to d is a decrease
(per 6 pac)in “Quantity Demanded” due to an
increase in price.
d
a b
c
D1
e
D0
D2
Quantity (6 pacs)
- A movement from point a to point b represents what?An increase in demand.
Why?Curve shifted to the right.
What might account for this particular movement?
Increase in income, increase in preferences, or some other change in non-price determinant.
- A movement from point a to point c represents what?A decrease in demand.
Why?Curve shifted left.
What might account for this particular movement?
Decrease in income, decrease in preferences, or some other change in a non-price determinant.
- A movement from point c to point d represents what?An increase in demand.
Why?Curve shifted right.
What might account for this particular movement?Same as (a)
- A movement from point b to point e represents what?A decrease in demand
Why?Curve shifted left.
What might account for this particular movement?Same as (b)
- Now consider the following graph for the market supply for beer. Assume that the initial market supply is S0[CoLH2].
S1
Price
(per 6 pac) S0
S2
d
b
c a
e
Quantity (6 pacs)
- A movement from point a to point b represents what?An increase in supply.
Why?Curve shifted right.
What might account for this particular movement?
A decrease in resource prices, technological advances, or some other change in a non-price determinant.
- A movement from point a to point c represents what?Decrease in Supply.
Why?Curve shifted left.
What might account for this particular movement?
An increase in resource prices, decrease in number of sellers, or some other change in a non-price determinant.
- A movement from point c to point d represents what?Increase in quantitysupplied.
Why?Movement along the supply curve.
What might account for this particular movement?Increase in price.
- A movement from point b to point e represents what?Decrease in quantitysupplied.
Why?Movement along the supply curve.
What might account for this particular movement?Decrease in price.
- Below find the market supply and demand schedules for kegs of beer.
Price / $10 / $20 / $30 / $40 / $50 / $60 / $70
Quantity
Demanded
(thousands) / 32 / 28 / 24 / 20 / 16 / 12 / 8
Quantity
Supplied
(thousands) / 4 / 7 / 10 / 13 / 16 / 19 / 22
- Draw the market supply and demand curves for kegs of beer on graph paper.
P
S
Surplus = 7
70
60
50
40
30
Shortage = 14
20
10
D
0 5 10 15 20 25 30 35 40 Q
- The equilibrium price in the market is : $50 .
- The equilibrium quantity in the market is : 16 .
- If the price were $30, there would be a shortage of 14 thousand kegs monthly.
If the price were $60, there would be a surplus of 7 thousand kegs monthly.
[CoLH1]10
[CoLH2]10