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Economics Exam Review: Supply and Demand Concepts

I have recently been hired by a new firm selling electronic dog feeders. My client has asked me to gather some data on the supply and demand for the feeder, which is given below, and address several questions regarding the supply and demand for these feeders.

Price/Feeder Quantity Demanded Quantity Supplied
$300 500 1800
270 600 1700
240 700 1600
210 800 1500
180 1000 1400
150 1100 1300
120 1200 1200
90 1300 1100
60 1400 1000
30 1500 900
10 1600 800

Questions:
1. Construct a graph showing supply and demand in the electronic dog feeder market, using Microsoft Excel.
2. How are the laws of supply and demand illustrated in this graph? Explain your answers.
3. What is the equilibrium price and quantity in this market?
4. Assume that the government imposes a price floor of $180 in the feeder market. What would happen in this market?
5. Assume that the price floor is removed and a price ceiling is imposed at $90. What would happen in this market?
6. Now, assume that the price of feeders drops by 50%. How would this change impact the demand for feeders? Explain your answer and reconstruct the graph developed in question one to show this change.
7. Assume that incomes of the consumers in this market increases. What would happen in this market? Explain your answer and reconstruct the graph developed in question one to show this change.
8. Assume that the number of sellers decreases in this market. What would happen in this market? Explain your answer and reconstruct the graph developed in question one to show this change.
9. Explain the difference between a normal good and an inferior good. Would your answers to question 7 change depending on whether this good is a normal or inferior good? Why?

Attachments

Solution Preview

1. See the attached file.
2. The law of demand states that the quantity demanded decreases as price increases. The law of supply states that the quantity supplied increases as price increases. The graph shows that both of these laws are true in this market.
3. The equilibrium price is $120 and the equilibrium quantity is 1200, where supply = demand.
4. At a ...

Solution Summary

Full solutions to a supply/demand case study of the market for electronic dog feeders. This case study reviews all of the most important concepts covered on standard economics exams. The topics covered include:

1. Laws of supply and demand
2. Equilibrium price and quantity
3. Price floors and price ceilings
4. Shifts in supply and demand
5. Normal and inferior goods
6. Short run vs. long run

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