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    Market Equilibrium Analysis

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    Market Equilibrium Analysis
    Question 1:
    Auto sales data show that as the price of gasoline increased significantly recently, fewer people bought SUVs. Based on this economic fact, please address the following questions:
    a. Determine the market in question (i.e., which market is of our interest for this homework);
    b. Explain whether a shift in demand or supply occurred in the market in question;
    c. Explain the reason and the direction of the shift;
    d. Determine the effect of the shift on the equilibrium price and the equilibrium quantity;
    e. Draw an equilibrium diagram to show the effect in question d. (refer to the text (pp.64-67) or instructor's lecture notes for examples of an equilibrium/shift)
    Question 2:
    Using the following fictitious demand and supply equations for housing in Minot: (you can assume these are demand and supply for two-bedroom apartments in the area if that will help your understanding. Question 8 in the book should also give some hints to solving this problem)
    Demand: Q = 10800 - 12P
    Supply: Q = -200 + 8P
    Please address the following questions:
    a. Graph the demand and supply curves in a single diagram to determine the equilibrium price and quantity.
    b. Suppose the Minot City Council deemed that the price of housing is too high and institute a price ceiling (rental control) of $450. Discuss the market consequence of the price ceiling: is there a shortage or surplus in the market? How big is it? Please indicate it both graphically and numerically.

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    Solution Summary

    Market Equilibrium Analysis is achieved.