Name: Son Dinh

ID: 2597957

ASSIGNMENT II

Problem 1:
Ketchup is a complement (as well as a condiment) for hot dogs. If the price of hot dogs rises,
what happens to the market for ketchup? For tomatoes? For tomato juice? For orange juice?
Ans:
-

Since the price of hot dogs increase, the quantity demanded for hot dogs decreases. Because
ketchup is a complement for hot dogs, the demand of market for ketchup decreases, causing

the equilibrium price of ketchup and equilibrium quantity fall.

Because of the decrease in equilibrium quantity of ketchup, the demand for tomatoes by

ketchup producers falls, lowering the equilibrium price and quantity of tomatoes.
Because tomatoes are the key input for tomatoes juice, the decrease in tomatoes equilibrium
price will increase the supply for tomato juice. This will decrease the equilibrium price of

tomato juice and increase its equilibrium quantity.

Since orange juice is a substitute for tomato juice, the decrease in price of tomato juice will
decrease the demand for orange juice, lowering its equilibrium price and quantity for orange
juice.

Name: Son Dinh

ID: 2597957

ASSIGNMENT II

Problem 2:
Market research has revealed the following information about the market for chocolate bars. The
demand schedule can be represented by the equation QD = 1600 300P, where the QD is
quantity demanded and P is the price. The supply schedule can be represented by the equation
QS = 1400 + 700 P, where QS is the quantity supplied. Calculate the equilibrium price and
quantity in the market for chocolate bars.
Ans: At the equilibrium point, the quantity demanded equals to the quantity supplied so:
1600 300P* = 1400 + 700P*
1000P* = 200
P* = 0.2 $
With P* = 0.2$, we have: Q* = QD = QS = 1600 0.2*300 = 1540 chocolate bars.
Equilibrium price: 0.2$ and equilibrium quantity: 1540 chocolate bars.

Name: Son Dinh

ID: 2597957

ASSIGNMENT II

Problem 3:
Cinemas are raising the price of popcorn. Demand for field corn, which is used for animal feed,
corn syrup, and ethanol, has increased and its price has exploded. Thats caused some farmers to
shift from growing popcorn to easier to grow field corn.
Explain and illustrate graphically the events descried in the news clip in the market for:
a. Popcorn
b. Movie tickets.
Ans:
a. The market for popcorn:
Since there is a shift from growing popcorn to field corn, the number of popcorns suppliers
decreases. In the demand supply curve, the demand curve remains the same while the
supply curve shifts to the left. This increases the equilibrium price and decreases the
equilibrium quantity.

b. The market for movie tickets:

Since popcorn are compliment good for movie ticket, the increase in popcorns price will fall
the demand for movie ticket. In the demand supply curve, the supply curve remains the
same while the demand curve shifts to the left. This decreases both equilibrium price and
quantity.

Name: Son Dinh

ID: 2597957

ASSIGNMENT II

Problem 4:
In the past year, the price of dry-cleaning solvent doubled. More than 4000 dry cleaners across
the United States disappeared as budget-conscious consumers cut back. This year the price of
hangers used by dry cleaners is expected to double. Source: CNN Money, June 4, 2012.
a. Explain the effect of rising solvent prices on the market for dry cleaning.
Since solvent is the key input for dry cleaning service, the increase in solvents price will fall
the supplier of the market for dry cleaning, shifting the supply curve to the left. The demand
curve does not change. This will increase the equilibrium price and decrease the equilibrium
quantity.

b. Explain the effect of consumers becoming more budget conscious along with the rising
price of solvent on the price of dry cleaning.
The effect of consumers becoming more budget conscious will fall the demand on the
market for dry cleaning, shifting the demand curve to the left. From part a, the rising
price of solvent will shift the supply curve to the left. If the decrease in demand exceeds
the decrease in supply, the equilibrium price will fall. If the decrease in supply exceeds
the decrease in demand, the equilibrium price will rise. If the decrease in supply equals
the decrease in demand, there is no change in price

c. If the price of hangers does rise this year, do you expect additional dry cleaners to
disappear? Explain why or why not.

Name: Son Dinh

ID: 2597957
-

ASSIGNMENT II

Hanger is also an input for dry cleaning service. If the price of hanger is doubled, the
supplier of dry cleanings market will decrease, shifting the supply curve to the left. This
will fall the equilibrium quantity, meaning additional dry cleaners to disappear.