Answer Key for Practice Problems on Demand and Supply
1. a) Discuss how the article made you feel as a consumer. This is normative analysis
because it is your opinion.
b) (6 points) Demand shifts to the right as it get hotter. This implies that the demand
curve shifts up the supply curve, thus leading to a new equilibrium with a larger
quantity demanded and a higher price. The Coca-Cola Company is trying to exploit
the natural workings of demand and supply with this machine!
price
P2
P1
Q1 Q2
Quantity
Note that the supply for cokes stays fixed since coke machines cannot be changed
immediately.
2. a. equilibrium wage = $4, equilibrium employment level = 2000
b. There is no unemployment. At the equilibrium wage of $4 everyone who wants a
job has a job.
c. 2000, the equilibrium wage of $4 is greater than the minimum wage so the price
floor is non-binding. The market will go to equilibrium.
d. None of their labor is unemployed. Again the price floor is non-binding (as in c).
e. quantity of employment = 1500 hours, quantity of unemployment = 1000 hours
quantity of unemployment is found in the following way: only
1500 hours of work are demanded by firms but teenagers would be willing to supply
2500 hours of work. The difference is the surplus of hours of work 2500-1500.
f. Teenagers will receive the minimum wage of $5. Now only 500 hours of their
labor is unemployed as opposed to the 1000 hours in part e.
3. Equilibrium Equilibrium Which curve
Price quantity shifts
a. A hurricane in SC damages up down supply
the cotton crop.
1
Supply of
cokes
Demand of
cokes
Demand of
cokes as
weather
gets hotter
