Hints for solving problems for Assignment #3
One of your classmates posed the following most excellent problem:
I am really confused when comparing the assignment to the example in class because in the example at $500, 0 is demanded and 50 is
supplied, vis versa when the price is $0. However in the assignment when the highest price $1.00, 2,000 is demanded and 11,000 is supplied the opposite can not be said for the lowest price $0.20, 18,000 is demanded and 3,000 is supplied. These numbers are confusing because I am not sure how to draw the graph to fit the scale (if this makes any sense), because the farthest point to the left is 2,000 but this does not hold true when the widgets are $0.20 (3,000).
In reply, I suggest the following:
Given that the demand and supply schedules are linear, you will find that if you extend the table you can find the "intercepts".
For demand, you see that as the price goes up 10 cents, the quantity demanded goes down by 2000. So what is the quantity demanded if the price is $1.10?
For supply, you see that as price falls by 10 cents, quantity supplied falls by 1000. So keep dropping the price until you find the quantity supplied is zero.
Then you have the ability to calculate as we did in class. Make sense?
BTW, one little technicality to think about: As you extend that supply curve you might notice it slips below the quantity (x) axis, with a Price (y) intercept negative. Does anything make sense below a price of zero? If not, you will need to think "hey, the supply curve must be flat along the Q axis instead of letting it slip below the P axis. I'm not going to give people a hard time with their calculations if they calculate a producer surplus with the price going negative, but it is a tricky point. (Ok, yeah, tricky, but homeworks are expected to be a learning exercise, not a regurgitation exercise.)
I am really confused when comparing the assignment to the example in class because in the example at $500, 0 is demanded and 50 is
supplied, vis versa when the price is $0. However in the assignment when the highest price $1.00, 2,000 is demanded and 11,000 is supplied the opposite can not be said for the lowest price $0.20, 18,000 is demanded and 3,000 is supplied. These numbers are confusing because I am not sure how to draw the graph to fit the scale (if this makes any sense), because the farthest point to the left is 2,000 but this does not hold true when the widgets are $0.20 (3,000).
In reply, I suggest the following:
Given that the demand and supply schedules are linear, you will find that if you extend the table you can find the "intercepts".
For demand, you see that as the price goes up 10 cents, the quantity demanded goes down by 2000. So what is the quantity demanded if the price is $1.10?
For supply, you see that as price falls by 10 cents, quantity supplied falls by 1000. So keep dropping the price until you find the quantity supplied is zero.
Then you have the ability to calculate as we did in class. Make sense?
BTW, one little technicality to think about: As you extend that supply curve you might notice it slips below the quantity (x) axis, with a Price (y) intercept negative. Does anything make sense below a price of zero? If not, you will need to think "hey, the supply curve must be flat along the Q axis instead of letting it slip below the P axis. I'm not going to give people a hard time with their calculations if they calculate a producer surplus with the price going negative, but it is a tricky point. (Ok, yeah, tricky, but homeworks are expected to be a learning exercise, not a regurgitation exercise.)
posted by Atomic Kid at 4:20 AM
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