1. ECONOMICS: Principles and Applications 3e HALL & LIEBERMAN © 2005 Thomson Business and Professional Publishing Working with Supply and Demand

2. Figure 1 A Price Ceiling in the Market for Maple Syrup 60,00050,00040,000 T E V R D S $4.00 3.00 2.00 2.increases quantity demanded 3.and decreases quantity supplied. 4.The result is a shortage – the distance between R and V. Number of Bottles of Maple Syrup per Period Price per Bottle 1.A price ceiling lower than the equilibrium price... 5.With a black market, the lower quantity sells for a higher price than initially.

3. Figure 2 A Price Floor in the Market for Nonfat Dry Milk 2.decreases quantity demanded... 200180220 $0.81 0.65 K J S D A 4.The result is a surplus the – distance between K and J – which government must buy. Millions of Pounds Price per Pound 1.A price floor higher than the equilibrium price... 3.and increases quantity supplied.

4. Figure 3 Calculating Price Elasticity of Demand

5. Figure 4 Elasticity and Straight- Line Demand Curves Quantity Price and since equal quantity decreases (horizontal arrows) are larger and larger percentage decreases... Since equal dollar increases (vertical arrows) are smaller and smaller percentage increases... 1 2 3 D demand becomes more and more elastic as we move leftward and upward along a straight-line demand curve.

6. Figure 5 Extreme Cases of Demand D Perfectly Inelastic Demand (a) Quantity Price per Unit 1 2 3 $4 20406080100 (b) D Quantity 20406080100 1 2 3 $4 Price per Unit Perfectly Elastic Demand

7. Table 1 Effects of Price Changes on Revenue

8. Table 2 Effects of Price Changes for Laptop Computers

9. Figure 6 Elasticity and Total Revenue B A D 3.Moving from A to B, expenditure increases, so demand must be inelastic over that range. 1.At point A, where price is $1,000 and 600,000 laptops are demanded, revenue is $600 million. 2.At point B, revenue is $750 million. Quantity of Laptops 100,000200,000300,000400,000500,000600,000 $3,500 3,000 2,500 2,000 1,500 1,000 500 Price per Laptop

10. Table 3 Some Short-Run Price Elasticities of Demand

11. Table 4 Adjustments After a Rise in the Price of Gasoline

12. Figure 7 The War on Drugs P1P1 Q1Q1 D1D1 A S1S1 Quantity Price per Unit (a)

13. Figure 7 The War on Drugs B (b) Q1Q1 S2S2 P2P2 Q2Q2 P1P1 D1D1 S1S1 Quantity Price per Unit A

14. Figure 7 The War on Drugs P1P1 Q1Q1 D1D1 A S1S1 Quantity Price per Unit C D2D2 Q3Q3 P3P3 (c)

15. Table 5 Some Income Elasticities

16. Table 6 Income and Spending on Economic Necessities and Economic Luxuries

17. Table 7 Some Cross-Price Elasticities

18. Figure 8 Extreme Cases of Supply S (a) Quantity per Period Price per Unit P1P1 P2P2 S (b) Quantity per Period Price per Unit Perfectly Inelastic Supply Perfectly Elastic Supply

19. Figure 9 The Tax on Airline Travel

20. Figure 10 The Effect of an Excise Tax on Airlines $340 $300 Millions of Tickets per Year Price per Ticket D A B $280 2. The $60 tax shifts the supply curve up by $60. 3. In the new equilibrium, buyers pay $340. 4.And, net of the tax, sellers receive $280. 1.Before the tax, the supply curve is S Before Tax and the price is $300. S After Tax S Before Tax

21. Figure 11 Tax Incidence and Demand Elasticity $300 10 2 D A D A B B Millions of Tickets per Year Price per Ticket (a) $360 S After Tax S Before Tax S After Tax S Before Tax (b) Price per Ticket Millions of Tickets per Year

22. Figure 12 Tax Incidence and Supply Elasticity $300 $240 $360 $300 10 8 D A D A B (a) Millions of Tickets per Year Price per Ticket (b) Price per Ticket Millions of Tickets per Year S Before and After Tax S After Tax S Before Tax

23. Figure 13 The Market for Food P1P1 Q1Q1 D S Old Technology Q2Q2 P2P2 A B P1P1 Q1Q1 D A B Q2Q2 P2P2 S New Technology (a)(b) Quantity of Food Price per Unit of Food Quantity of Food S Bad Weather S Good Weather

24. Table 8 U.S Winter Wheat Production

25. Figure 14 The Market for Health Care with Coinsurance Examinations per Year Price per Examination 150,000100,000 B A D After Insurance D Before Insurance S $100 70 50