Practice Problems on Demand and Supply
1. On Oct. 27, 1999, CNNfn reported that the Coca-Cola Company was evaluating a
vending machine that automatically raises the price of a Coke when it gets hot.
(http://cnnfn.com/1999/10/27/companies/coke/) (8 points)
a. As a consumer how does this make you feel? Is this a positive or a
normative analysis?
b. Explain what is happening from an economic standpoint, using the
theories of supply and demand. You should show a graph, how it is
manipulated, and give a brief explanation. (Hint: Going to the web site
and reading the article first will probably help a lot!)
2. The table gives the demand for and supply of teenage labor: (10 points)
wage rate (dollars per
hour)
Quantity demanded
(hours per month)
Quantity supplied (hours
per month)
2 3000 1000
3 2500 1500
4 2000 2000
5 1500 2500
6 1000 3000
a. What are the equilibrium wage rate and level of employment?
b. What is the quantity of unemployment?
c. If a minimum wage of $3 an hour is set for teenagers, how many hours do they
work?
d. If a minimum wage of $3 an hour is set for teenagers, how many hours of their
labor is unemployed?
e. If a minimum wage is set at $5 an hour for teenagers, what are the quantities of
employment and unemployment?
f. If a minimum wage is set at $5 an hour and demand increases by 500 hours a
month, what is the wage rate paid to teenagers and how many hours of their labor
is unemployed. (Hint: recall that demand is a schedule, which means that
quantity demanded increases by 500 at EVERY price level.)
from Economics by: Parkin 1999 page 147
Note: A helpful study hint: Be sure that you can show all of these
things graphically!
3. Indicate the effect of each of the following developments on the equilibrium price
and quantity of SWEATSHIRTS. Write “UP”, “DOWN”, or “NEITHER” in the
price and quantity columns and “SUPPLY”, “DEMAND”, or NEITHER” in the
shift column. (Note: It may help to draw the curves and their shifts to answer the
question.) (12 points) from Mankiw p. 91
Equilibrium Equilibrium Which curve
Price quantity shifts
a. A hurricane in SC damages
