9.
Consider the following events: Scientists reveal that eating oranges decreases the risk of
diabetes, and at the same time, farmers use a new fertilizer that makes orange trees produce more
oranges. Illustrate and explain what effect these changes have on the equilibrium price and
quantity of oranges.
If oranges reduce the risk of diabetes, the demand will shift to the right, increasing price
and quantity.
If farmers become more productive, that increases supply, increasing quantity but
decreasing price.
So, we know that quantity increases but we don't know what happens to price because the
two shifts affect price differently and we don't know the magnitude of each.
10. Because bagels and cream cheese are often eaten together, they are complements.
a. We observe that both the equilibrium price of cream cheese and the equilibrium quantity of
bagels have risen. What could be responsible for this pattern—a fall in the price of flour or a fall
in the price of milk? Illustrate and explain your answer.
A fall in the price of milk is responsible for this increase in the price of cheese cream and
the quantity of bagels.
A fall in the price of milk would induce the producers of cheese cream to produce more.
Since cheese cream and bagels are complements, the demand for bagels would rise as
cheese cream is readily available in the market. So the demand curve of bagels would
shift to the right, as shown in the figure, and the equilibrium quantity of bagels and price
of cream cheese would rise.
b. Suppose instead that the equilibrium price of cream cheese has risen but the equilibrium
quantity of bagels has fallen. What could be responsible for this pattern—a rise in the price of
flour or a rise in the price of milk? Illustrate and explain your answer.
A rise in the price of flour is responsible for an increase in the price of cheese cream and
a drop in the quantity of bagels.
A rise in the price of flour would induce the producers of bagels to reduce their supply as
its cost of input rises. So the supply for bagels would fall and the supply curve would
shift to the left, which causes the equilibrium quantity of bagels to decline and the price
of cream cheese to rise.
11. Suppose that the price of basketball tickets at your college is determined by market
forces. Currently, the demand and supply schedules are as follows:
Price Supplied Quantity Demanded Quantity supplied
$4 10,000 tickets 8,000 tickets
12 6,000 8,000
16 4,000 8,000
20 2,000 8,000
a. Draw the demand and supply curves. What is unusual about this supply curve? Why?
#As shown in the figure, the supply curve is vertical. The constant quantity supplied makes
sense because the basketball arena has a fixed number of seats no matter what the price.
b. What are the equilibrium price and quantity of tickets?
Quantity supplied equals quantity demanded at a price of $8. The equilibrium quantity is
8,000 tickets.
C. Your college plans to increase total enrollment next year by 5,000 students. The additional
students will have the following demand schedule: Price Quantity Demanded $4 4,000 tickets 8
3,000 12 2,000 16 1,000 20 0 Now add the old demand schedule and the demand schedule for
the new students to calculate the new demand schedule for the entire college. What will be the
new equilibrium price and quantity?
The new equilibrium price will be $12, which equates quantity demanded to quantity
supplied. The equilibrium quantity is 8,000 tickets
