Macroeconomics

Assignment 3: Supply, Demand, & Government in the Markets

A doctoral student has just completed a study for her dissertation and found the following demand and supply schedules for hand held computers to be as follows:

Questions: Using Microsoft Excel, draw a graph illustrating the supply and demand in this market.

What is the equilibrium Price and Quantity in the market?

The Equilibrium price is $125. The Equilibrium Quantity is 1750.

Now suppose the government imposes a special tax on these computers. Describe what would happen in this market in terms of the supply and demand curve.

If a tax was imposed the price of the computers would increase, that increase would cause demands to decrease and supply would then increase.

Disregard the new tax in part three. Now assume that the government imposes a price ceiling of $100 in this market, as a result of protests of price gouging by the sellers. What would happen to the price and quantity in this market?

The price ceiling sets the highest price allowed for that market. Sellers who were price gouging will have to drop their prices to meet this new requirement. Sellers selling below this price can raise their prices. Demand would then increase causing supplies to decrease.

Disregard the events of part four. Assume that the manufacturers of this product lobby the government’s lawmakers, in terms of this product being an essential for college students but they are considering halting production due to the lack of profits. The lawmakers agree and now set a price floor at $150. What would happen in this market?

If consumers’ expectations were such that they were concerned about the economy and jobs, what would you think would happen in this market?

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