Additional Practice Problems

Practice Problem #1

• The demand for apartments is P=1200-Q while the supply is P=Q units.

1. Suppose the government imposes rent control at P=$300. Calculate the excess demand.

2. Suppose demand in the marker grows to P=1400-Q. How is excess demand affected by the growth in demand?

Practice Problem #2

• Suppose demand is P=600-Q and supply is P=Q in the soybean market, where Q is tons of soybeans per year. The government sets a price support at P=$500/ton and purchases any excess supply at this price.

1. How much is the government spending on buying the excess supply?

2. Suppose that in response, farmers are switching from producing corn to soybeans, expanding supply to P=(1/2)Q. Now how much is the government spending?

Practice Problem #3

• The monthly demand for calculators among engineering students is P=100-Q, where P is the price per calculator and Q is the number of calculators purchased per month. 1. If the price is $30, how much revenue will the calculators makers get each month?

2. Find the price elasiticity of demand.

3. What should the producers do to increase revenue?

Practice Problem #4

• A hot dog vendor faces a daily demand curve of Q=1800-15P, where P is the price of a hot dog in cents and Q is the number of hot dogs purchased each day.

1. If the vendor has been selling 300 hot dogs per day, how much revenue has he been collecting?

2. What is the price elasticity of demand?

3. The vendor decides that he wants to generate more revenue. Should he increase or lower prices?

4. At what price would the hot dog vendor achieve maximum revenue?