Work It Out Chapter 3

Question 1 of 3

Work It Out

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The accompanying table gives the annual U.S. demand and supply schedules for pickup trucks.

Price of truck	Quantity of trucks demanded (millions)	Quantity of trucks supplied (millions)
$20,000	20	14
25,000	18	15
30,000	16	16
35,000	14	17
40,000	12	18

Table

Using the data from the table, find the equilibrium price and quantity.

Equilibrium occurs at a price of $35,000 and a quantity of 16 million.

Equilibrium occurs at a price of $20,000 and a quantity of 20 million.

Equilibrium occurs at a price of $25,000 and a quantity of 15 million.

Equilibrium occurs at a price of $30,000 and a quantity of 16 million.

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WIO_Krugman_Chapter03_01.mp4

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Suppose the tires used on pickup trucks are found to be defective. Using the following graph, what do you expect will happen to demand and supply in the market for pickup trucks?

The graph depicts supply and demand curves. The horizontal axis is labeled ‘Quantity of trucks’ in millions, starting from 11 to 20 in single increments. The vertical axis is labeled ‘Price of truck’ in dollars, and starts from 15,000 to 45,000, in increments of 500. The original demand and supply curves are labeled D1 and S1 respectively. A decrease in demand is represented by a dotted line D2, which is to the left of D1. An increase in demand is represented by a dotted line D3, which is to the right of D1. Similarly, decreased supply is represented by S2, which is to the left of S1. An increased supply is represented by S3, which is to the right of S1.

Demand will shift from D₁ to D₂ and supply will shift from S₂ to S₃.

Demand will shift from D₁ to D₂ and supply will shift from S₁ to S₂.

Demand will shift from D₁ to D₂ and supply will remain constant.

Supply will shift from S₁ to S₂ and demand will remain constant.

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WIO_Krugman_Chapter03_02.mp4

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Suppose that the U. S. Department of Transportation imposes costly regulations on manufacturers that cause them to reduce supply by one- third at any given price. Calculate the new supply schedule by filling in the blanks in this table (quantities should include one decimal place, i.e. 15.0). Based on your findings, identify the new equilibrium price and the new equilibrium quantity.

Price of truck	Quantity of trucks demanded (millions)	Quantity of trucks supplied (millions)
$20,000	20	14
25,000	18	15
30,000	16	16
35,000	14	17
40,000	12	18

Table

The new equilibrium price is $ . (no decimals)

The new equilibrium quantity is million. (no decimals)

To find the correct answers you will multiply quantity supplied by two-thirds for all the prices listed. So at a price of $20,000 the manufactures will supply a quantity of 14*2/3 or 9.3 million trucks. At a price of $25,000 the manufacturers will supply a quantity of 15*2/3 or 10.0 million trucks, and so on. The new equilibrium price and quantity will be found where quantity demand equals the new quantity supplied. This occurs at a price of $40,000 and a quantity of 12 million trucks. For further review, see section “What Happens When the Supply Cure Shifts.”

WIO_Krugman_Chapter03_03.mp4

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Work It OutChapter 3

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