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Janet Hong Professor Kinnaman ECON 103 September 22, 2009 HOMEWORK #3 1] a) This statement is not correct.

A decrease in demand leads to a decrease in quantity demanded; it disrupts the market equilibrium, thus creates a surplus. As the price of the good gets lower, however, the quantity supplied also decreases and the surplus disappears. b) I disagree with this statement, as well. Price ceiling increases the quantity in demand, but decreases the quantity supplied at the same time. Therefore, the amount of products consumed does not increase even though more families can now afford the product.

2] a) market price ,market quantity (demand ) Incomes have risen among consumers, enabling more of them to afford airline tickets. More number of people desired for traveling as a result. Seasonal factor might have affected this change in the industry since more travels take place during vacation during few months in summer. As the price increased, consumers expected it to rise even higher in future, therefore they purchased more tickets in rush.

b) market price , market quantity (supply ) The price of tickets became higher because taxes and wages for labors have risen across the nation. Also, the industries of alternative transportations were making more profit. The owners of the airline industry consequently decreased its supply, which is the available number of flights. The cost of input for maintaining plane facilities and improving technology also increased the price of tickets.

3] a) Demand for ice and its increase as thousands of people who lost power wound try to keep foods in their refrigerator with ice.

b) A cooler summer will cause demand for ice to decrease, and price to go down eventually.

c) A technological improvement is implemented for the production that facilitates a delivery of ice. Market supply increases as a result.

d) The price ceiling imposed by government increases the quantity demanded while diminishing the quantity supplied for ice. A shortage is created in the ice market.

4] a) The new law reduces the quantity of gasoline demanded and produced because 50% of all cars sold do not require gasoline anymore.

b) The war among oil producing countries diminishes the supply of gasoline.

c) As train now becomes more efficient form of transportation, increasing number of people will take trains. The demand for car and gasoline decreases.

d) The production of oil is more profitable for oil refineries at this point; therefore they will invest more on producing home heating oil than gasoline. The quantity of gasoline supplied decreases.