Following the American Psychological Association’s Guidelines
Answers to the Questions
1.The city of Santa Utopia is plagued by ever increasing rent. Worrying that seniors may not be able to afford their rent payments, a city supervisor proposes imposing rent controls. Using supply and demand framework, diagram the effects of rent controls. Will the Santa Utopia rental market face excess demand or excess supply?
In Utopia, the equilibrium price is at Pe and it has been very high for citizens. Therefore, a supervisor suggests applying rent control. If the city management applies that suggestion, the price level has to be kept under the equilibrium price. In the graph above, the price ceiling is placed at Pmax level, and no one will be allowed to request or pay a higher rent than the Pmax. However, at this price level, many home owners will not be willing to rent their houses, while the renters would like to rent houses. Thus, some home owners will not rent their houses, while some people are requesting to rent a house for themselves. Consequently, Utopians will face some houses not rented, in another word, excess demand.
2.How would each of the followings affect the U.S. market supply curve for corn? a. A new and improved crop rotation technique is discovered
The advanced technology will help the farmers produce more corn. Subsequently, the production or the supply of the corn will increase and the supply curve will shift to the right.
b. The price of fertilizer falls
The fertilizer is an input for the production of corn. When the price of the fertilizer goes down, then the cost of production will decrease. Subsequently, the farmers will be able to produce more corn. The supply of corn will increase, and the supply curve will shift to the right.
c. The government offers new tax breaks to farmers
Taxes are an important part in the production costs. When it decreases, the farmers’ cost of production will decrease, and they will be able to produce higher amount of corn. Subsequently, the supply will increase and the supply curve will shift to the right.
d. A tornado sweeps through Iowa
That is a terrible situation, and eventually we will lose most of the corn production. Thus, the supply of corn will decrease, and the supply curve will shift to the left.
3. Indicate how you think each of the following would shift demand in the indicated market:a. Incomes of buyers in the market for Adirondack vacations increases
When income increases, then people might spend more; however, they spend their money on the things they like. The vacation in Adirondack is a desirable for many people, thus when their income increases, then the demand for this vacation will increase, and the demand curve will shift to the right.
b. Buyers in the market for pizza read a study linking hamburger consumption to heart disease
That is a bad news, and it might influence people. It might create the idea that the burger is harmful among the buyers; therefore, they might decrease their consumption of burgers, and they have to eat something. Most probably, they might eat more pizza. Thus, the demand for pizza might increase, and the demand curve might shift to the right.
c. Buyers in the market for CDs learn of an increase in the price of audiocassettes (a substitute for CDs)
Because the audiocassettes are more increase, then people might by the substitute good CD more. Because both of the goods help people listen to the same music; therefore, people might prefer using CDs. The demand for CDs might shift to the right.
d. Buyers in the market for CDs learn of an increase in the price of CDs
If the price of CDs increases, then people might not want to buy CDs. The demand for the CDs does not shift; however, the market moves on the current demand curve downward. As we know the demand curve includes quantity and pricing information; thus a change in the prices will not shift the demand curve.
4. An Arizona student claims to have spotted a UFO over the desert outside of Tucson. How will his claim affect the supply (not the quantity supplied) of binoculars in Tucson stores?
The people who are interested in UFOs will run to Arizona, and they would like to watch the sky all day. To be able to catch more things on the sky, they might want to use a binocular. Subsequently, people would like to buy binoculars. Consequently, we can claim that the demand for binoculars might shift to the right.
However, the supply of binoculars will not change because the suppliers are not expecting that many people would come to the city. Thus, in the short run, they cannot increase the production. Thus, the demand increases while the supply stays the same.
REFERENCES
Nechyba, T. J. (2011). Microeconomics: An Intuitive Approach with Calculus. South Western Publications, Mason, OH.
Boyes, W. J. and Melvin, M. (2013). Microeconomics. South Western Publications, Mason, OH.
Stiglitz, J. E. and Walsh, C. E. (2007). Economics, W.W. Norton & Company, Inc.,
New York, International Student Edition, 4th edition, 2007.
Varian, H. R. (2010). Intermediate Microeconomics: A Modern Approach, W.W. Norton and Company/Affiliated East - West Press, 8th edition.
