1. EL SISTEMA DE SEGURIDAD COLECTIVA PREVISTO POR LA CARTA DE LAS NACIONES UNIDAS
1.2. Las causas de la ineficiencia del sistema de seguridad colectiva
1.2.2. La dudosa eficacia del Consejo de Seguridad
In January 2009, the price of coffee (the kind that you get at Starbucks and simi-lar coffee shops called Arabica) was
$1.25 a pound (point A in Figure 1) and by May 2011, it had risen to $3.00 a pound (point B).Why did the price of coffee soar? Figure 2, which shows the
market for coffee, answers this question.
The demand curve D and the supply curve S09determined the equilibrium price and quantity in 2009 at $1.25 a pound and 950 million pounds.
Heavy rain led to exceptionally low harvests in Colombia, Indonesia, Mexico,
and Vietnam, which decreased the supply of coffee.The supply curve shifted leftward to S11.The price increased to $3.00 a pound.The quantity demanded and equilibrium quantity decreased to 800 million pounds.
Changes in Both Demand and Supply
When events occur that change both demand and supply, you can find the result-ing change in the equilibrium price and equilibrium quantity by combinresult-ing the cases you’ve just studied. Figure 4.13 summarizes all the possible cases.
Increase in Both Demand and Supply
An increase in demand or an increase in supply increases the equilibrium quan-tity. So when demand and supply increase together, the quantity increases. But the price rises when demand increases and falls when supply increases. So when demand and supply increase together, we can’t say what happens to the price unless we know the magnitudes of the changes. If demand increases by more than supply increases, the price rises. But if supply increases by more than demand increases, the price falls. Figure 4.13(e) shows the case when supply increases by the same amount as demand increases, so the price remains unchanged.
Decrease in Both Demand and Supply
A decrease in demand or a decrease in supply decreases the equilibrium quantity.
So when demand and supply decrease together, the quantity decreases. But the price falls when demand decreases and rises when supply decreases. So when demand and supply decrease together, we can’t say what happens to the price unless we know the magnitudes of the changes. If demand decreases by more than supply decreases, the price falls. But if supply decreases by more than demand decreases, the price rises. Figure 4.13(i) shows the case when supply decreases by the same amount as demand decreases, so the price remains unchanged.
Increase in Demand and Decrease in Supply
An increase in demand or a decrease in supply raises the equilibrium price, so combined, these changes raise the price. But an increase in demand increases the quantity, and a decrease in supply decreases the quantity. So when these changes occur together, we can’t say what happens to the quantity unless we know the magnitudes of the changes. If demand increases by more than supply decreases, the quantity increases. But if supply decreases by more than demand increases, the quantity decreases. Figure 4.13(h) shows the case when demand increases by the same amount as supply decreases, so the quantity remains unchanged.
Decrease in Demand and Increase in Supply
A decrease in demand or an increase in supply lowers the equilibrium price, so combined, these changes lower the price. But a decrease in demand decreases the quantity, and an increase in supply increases the quantity. So when these changes occur together, we can’t say what happens to the quantity unless we know the magnitudes of the changes. If demand decreases by more than supply increases, the quantity decreases. But if supply increases by more than demand decreases, the quantity increases. Figure 4.13(f) shows the case when demand decreases by the same amount as supply increases, so the quantity remains unchanged.
For the cases in Figure 4.13 where you “can’t say” what happens to price or quantity, make some examples that go in each direction.
Price
(a) No change in demand or supply
(c) Decrease in demand 0.75
(b) Increase in demand S
(g) Decrease in supply
Price
(i) Decrease in both demand and supply
(h) Increase in demand and decrease in supply
(d) Increase in supply 0.75
(f) Decrease in demand and increase in supply
(e) Increase in both demand and supply
The Effects of All the Possible Changes in Demand and Supply MyEconLabAnimation
CHECKPOINT 4.3
Explain how demand and supply determine price and quantity in a market, and explain the effects of changes in demand and supply.
Practice Problems
Table 1 sets out the demand and supply schedules for milk.
1. What is the equilibrium price and equilibrium quantity of milk?
2. Describe the situation in the milk market if the price were $1.75 a carton and explain how the market reaches equilibrium.
3. A drought decreases the quantity supplied by 45 cartons a day at each price.
What is the new equilibrium and how does the market adjust to it?
4. If milk becomes more popular and better feeds increase milk production, describe how the equilibrium price and quantity of milk will change.
In the News
After wild weather, higher food prices on horizon
After heavy rain this year, the corn harvest will be less than expected while the demand for corn will continue to increase. Food prices will continue to rise.
Source: npr, June 9, 2011 Using the demand and supply model explain why food prices are expected to rise.
Solutions to Practice Problems
1. Equilibrium price is $1.50 a carton; equilibrium quantity is 150 cartons a day.
2. At $1.75 a carton, the quantity demanded (125 cartons) is less than the quan-tity supplied (170 cartons), so there is a surplus of 45 cartons a day. The price begins to fall, and as it does, the quantity demanded increases, the quantity supplied decreases, and the surplus decreases. The price will fall until the surplus is eliminated. The price falls to $1.50 a carton.
3. The supply decreases by 45 cartons a day so at $1.50 a carton there is a shortage of milk. The price begins to rise, and as it does, the quantity demanded decreases, the quantity supplied increases, and the shortage decreases. The price will rise until the shortage is eliminated. The new equi-librium occurs at $1.75 a carton and 125 cartons a day (Figure 1).
4. With milk more popular, demand increases. With better feeds, supply increases. If supply increases by more than demand, a surplus arises. The price falls, and the quantity increases (Figure 2). If demand increases by more than supply, a shortage arises. The price rises, and the quantity increases. If demand and supply increase by the same amount, there is no shortage or sur-plus, so the price does not change, but the quantity increases.
Solution to In the News
A fall in the corn harvest will decrease the supply of corn and shift the supply curve of corn leftward. The increase in the demand for corn will shift the demand curve rightward. The price of corn will rise. The higher price of corn will decrease the supply of food made from corn and raise the price of this food.
You can work these problems in Study Plan 4.3 and get instant feedback.
CHAPTER SUMMARY
Key Points
1. Distinguish between quantity demanded and demand, and explain what determines demand.
• Other things remaining the same, the quantity demanded increases as the price falls and decreases as the price rises—the law of demand.
• The demand for a good is influenced by the prices of related goods, expected future prices, income, expected future income and credit, the number of buyers, and preferences. A change in any of these influences changes the demand for the good.
2. Distinguish between quantity supplied and supply, and explain what determines supply.
• Other things remaining the same, the quantity supplied increases as the price rises and decreases as the price falls—the law of supply.
• The supply of a good is influenced by the prices of related goods, prices of resources and other inputs, expected future prices, the number of sellers, and productivity. A change in any of these influences changes the supply of the good.
3. Explain how demand and supply determine price and quantity in a market, and explain the effects of changes in demand and supply.
• The law of market forces brings market equilibrium—the equilibrium price and equilibrium quantity at which buyers and sellers trade.
• The price adjusts to maintain market equilibrium—to keep the quantity demanded equal to the quantity supplied. A surplus brings a fall in the price to restore market equilibrium; a shortage brings a rise in the price to restore market equilibrium.
• Market equilibrium responds to changes in demand and supply. An increase in demand increases both the price and the quantity; a decrease in demand decreases both the price and the quantity. An increase in supply increases the quantity but decreases the price; and a decrease in supply decreases the quantity but increases the price.
Key Terms
Change in demand, 88
Change in the quantity demanded, 90 Change in the quantity supplied, 97 Change in supply, 95
Complement, 88
Complement in production, 95 Demand, 85
Demand curve, 86 Demand schedule, 86
Equilibrium price, 99 Equilibrium quantity, 99 Inferior good, 89 Law of demand, 85 Law of market forces, 99 Law of supply, 92 Market demand, 87 Market equilibrium, 99 Market supply, 94
Normal good, 89 Quantity demanded, 85 Quantity supplied, 92 Substitute, 88
Substitute in production, 95 Supply, 92
Supply curve, 93 Supply schedule, 93
CHAPTER CHECKPOINT
Study Plan Problems and Applications
1. Explain how each of the following events changes the demand for or supply of air travel.
• Airfares tumble, while long-distance bus fares don’t change.
• The price of jet fuel rises.
• Airlines reduce the number of flights each day.
• People expect airfares to increase next summer.
• The price of train travel falls.
• The price of a pound of air cargo increases.
Use the laws of demand and supply to explain whether the statements in Problems 2and 3are true or false. In your explanation, distinguish between a change in demand and a change in the quantity demanded and between a change in supply and a change in the quantity supplied.
2. The United States does not allow oranges from Brazil (the world’s largest producer of oranges) to enter the United States. If Brazilian oranges were sold in the United States, oranges and orange juice would be cheaper.
3. If the price of frozen yogurt falls, the quantity of ice cream consumed will decrease and the price of ice cream will rise.
4. Table 1 shows the demand and supply schedules for running shoes. What is the market equilibrium? If the price is $70 a pair, describe the situation in the market. Explain how market equilibrium is restored. If a rise in income increases the demand for running shoes by 100 pairs a day at each price, explain how the market adjusts to its new equilibrium.
5. “As more people buy fuel-efficient hybrid cars, the demand for gasoline will decrease and the price of gasoline will fall. The fall in the price of gasoline will decrease the supply of gasoline.” Is this statement true? Explain.
6. OPEC deadlocked on oil production hike
Oil prices breached the $100-a-barrel mark Wednesday after OPEC said it could not reach an agreement about raising crude production.
Source: CNN Money, June 8, 2011 Draw a graph to show the oil market in equilibrium. Suppose that OPEC members had agreed to increase production. Show on your graph, the effect of this decision on the market equilibrium.
Use the following information to work Problems 7and 8.
Pricier bread and cereal. Coming soon?
Wheat and corn prices surged about 10 percent last week and could hit the items in your grocery basket by mid-summer. It’s a case of two extremes: dry weather conditions in parts of the southern United States and in Europe have sparked fears of a supply crunch of wheat, while supplies of corn are being threatened by flood-ing and heavy rain in the Midwest.
Source: CNN Money, May 19, 2011 7. Explain why the dry weather will lead to a rise in the price of bread.
8. Use graphs to show why the price of corn has risen and show its effect on the price of cereals.
MyEconLab
TABLE 1
Quantity Quantity demanded supplied
(pairs per day)
60 1,000 400
70 900 500
80 800 600
90 700 700
100 600 800
110 500 900
Price (dollars per
pair)
You can work these problems in Chapter 4 Study Plan and get instant feedback.
Instructor Assignable Problems and Applications
1. If after heavy rain and low production, the weather improves and coffee growers enjoy bumper crops, how does
• The demand for coffee change?
• The supply of coffee change?
• The price of coffee change?
Illustrate your answer with a graphical analysis.
2. What is the effect on the equilibrium price and equilibrium quantity of orange juice if the price of apple juice decreases and the wage rate paid to orange grove workers increases?
3. What is the effect on the equilibrium in the orange juice market if orange juice becomes more popular and a cheaper robot is used to pick oranges?
Table 1 shows the demand and supply schedules for boxes of chocolates in an average week. Use this information to work Problems 4and 5.
4. If the price of chocolates is $17.00 a box, describe the situation in the market.
Explain how market equilibrium is restored.
5. During Valentine’s week, more people buy chocolates and chocolatiers offer their chocolates in special red boxes, which cost more to produce than the everyday box. Set out the three-step process of analysis and show on a graph the adjustment process to the new equilibrium. Describe the changes in the equilibrium price and the equilibrium quantity.
6. After a severe bout of foreclosures and defaults on home loans, banks made it harder for people to borrow. How does this change influence
• The demand for new homes?
• The supply of new homes?
• The price of new homes?
Illustrate your answer with a graphical analysis.
7. Alabama food prices jump in May
Alabama Farmers Federation announced that food prices in May will increase. In previous unprofitable years, farmers reduced their herds with the result that in 2009 meat production will fall. Bacon is expected to rise by 32 cents a pound to $4.18 and steaks by 57 cents to $8.41 a pound.
Source: The Birmingham News, May 21, 2009 Explain why the reduction of herds will lead to a rise in meat prices today.
Draw a graph to illustrate.
8. “As more people buy computers, the demand for Internet service increases and the price of Internet service decreases. The fall in the price of Internet service decreases the supply of Internet service.” Is this statement true or false? Explain.
9. Steel output set for historic drop
Steel producers expect to cut output by 10 percent in 2009 in response to cancelled orders from construction companies and car and household appli-ance producers.
Source: Financial Times, December 28, 2008 Does the cancellation of orders change the demand for steel, the quantity demanded, the supply of steel, or the quantity supplied? What happens to the equilibrium price of steel?
Your instructor can assign these problems as homework, a quiz, or a test in MyEconLab.
TABLE 1
Quantity Quantity demanded supplied
(boxes per week)
13.00 1,600 1,200
14.00 1,500 1,300
15.00 1,400 1,400
16.00 1,300 1,500
17.00 1,200 1,600
18.00 1,100 1,700
Price (dollars per
box)
Multiple Choice Quiz
1. Which of the following events illustrates the law of demand: Other things remaining the same, a rise in the price of a good will ________ .
A. decrease the quantity demanded of that good B. increase the demand for a substitute of that good C. decrease the demand for the good
D. increase the demand for a complement of that good
2. In the market for jeans, which of the following events increases the demand for a pair of jeans?
A. rise in the wage rate paid to garment workers
B. rise in the price of a denim skirt (a substitute for jeans) C. fall in the price of denim cloth
D. new technology, which reduces the time it takes to make a pair of jeans 3. Other things remaining the same, a fall in the price of peanuts will ________.
A. increase the supply of peanuts B. decrease the supply of peanut butter C. decrease the quantity supplied of peanuts D. decrease the supply of peanuts
4. In the market for cell phones, which of the following events increases the supply of cell phones?
A. New technology lowers the cost of making a cell phone
B. Rise in the price of an e-book reader (a substitute in production) C. An increase in people’s incomes
D. A rise in the wage rate paid to electronics workers
5. When floods wiped out the banana crop in Central America, the equilibrium price of bananas ________ and the equilibrium quantity of bananas ________.
A. rose; increased B. rose; decreased C. fell; increased D. fell; decreased
6. A decrease in the demand for chocolate with no change in the supply of chocolate will create a ________ of chocolate at today’s price, but gradually the price will ________.
A. surplus; fall B. shortage; fall C. surplus; rise D. shortage; rise
7. Many Americans are selling their used cars and buying new fuel-efficient hybrids. Other things remaining the same, in the market for used cars, ________ and in the market for hybrids ________.
A. supply increases and the price falls; demand increases and the price rises B. demand decreases and the price rises; supply increases and the price falls C. both demand and supply decrease and the price might rise, fall, or not
change; demand increases and the price rises
D. demand decreases, supply increases, and the price falls; supply increases and the price falls
MyEconLab
You can work this quiz in Chapter 4 Study Plan and get instant feedback.
Elasticities of
Demand and Supply
111