Supply & Demand Q&A

• Supply & Demand Q&A
• Q1: What are the determinants of supply? What happens to the supply curve when any of these determinants change? Distinguish between a change in supply and a change in the quantity supplied, noting the cause(s) of each.
• Q2: For each stock in the stock market, the number of shares sold daily equals the number of shares purchased. That is, the number of each firm’s shares demanded equals the quantity supplied. So, if this equality always occurs, why do the prices of stock shares ever change?
• Q3: Real (inflation-adjusted) tuition costs were nearly constant during the 1960s despite a huge increase in the number of college students as the very large Baby Boom generation came of age. What does this suggest about the supply of higher education during that period? When the much smaller Baby Bust generation followed in the 1970s, real tuition costs fell. What does that suggest about demand relative to supply during the 1970s?
• Q4: What divergences arise between equilibrium output and efficient output when (a) negative externalities and (b) positive externalities are present? How might the government correct these divergences? Cite an example (other than the text examples) of an external cost and an external benefit.
• Q5: Why are spillover costs and spillover benefits also called negative and positive externalities? Show graphically how a tax can correct for a negative externality and how a subsidy to producers can correct for a positive externality. How does a subsidy to consumers differ from a subsidy to producers in correcting for a positive externality?

Q1: What are the determinants of supply? What happens to the supply curve when any of these determinants change? Distinguish between a change in supply and a change in the quantity supplied, noting the cause(s) of each.

• The determinants of supply are the factors other than price that determine the quantities supplied of a good or service. Also known as “supply shifters” because changes in the determinants of supply will cause the supply curve to shift either left or right. When there is a change in supply (for the good, for the bad, and for the best) the supply curve as a whole will shift. When there is a change in quantity supplied (in combination with a strict supply schedule), it is to be known that the cause of this is a change in a product’s price.

Q2: For each stock in the stock market, the number of shares sold daily equals the number of shares purchased. That is, the number of each firm’s shares demanded equals the quantity supplied. So, if this equality always occurs, why do the prices of stock shares ever change?

• The simple answer is fees. Fees of all types disrupt the equilibrium. Stock prices change for a lot of reasons, depending on company performance, shareholders, etc. All of the disruptors end up leaving some people in debt because if the market share price decrease, then comes back to equilibrium, the investor is not guaranteed all of his money back. The investor would have to make up for the ground lost plus the fees paid.

Q3: Real (inflation-adjusted) tuition costs were nearly constant during the 1960s despite a huge increase in the number of college students as the very large Baby Boom generation came of age. What does this suggest about the supply of higher education during that period? When the much smaller Baby Bust generation followed in the 1970s, real tuition costs fell. What does that suggest about demand relative to supply during the 1970s?

• If the tuition costs were almost at a complete regular during the overload of the baby boom generation, this goes to show that the economy is thriving. Steep rises intuition (prices) suggest that the country is below average in higher education attendees. However, if there is a profound demand is going to college, then the price of tuition will go down. The fact that the price stayed constant while the large baby-boom movement came into the picture suggests that the overall value of going to college is lesser than it was before the movement; good old supply and demand.
• The baby bust generation had a rapid decline in the birthrate from the mid-1960s to the 1980s, which should mean that the tuition prices should go up. This was not the case; in fact, the tuition costs fell. This is due to the still-large demand from the leftovers from the baby boomers, the higher rate of enrollees at college, and the USA’s economic prowess.

Q4: What divergences arise between equilibrium output and efficient output when (a) negative externalities and (b) positive externalities are present? How might the government correct these divergences? Cite an example (other than the text examples) of an external cost and an external benefit.

• Positive externalities are a company’s underproduction of outputs, while negative externalities are a company’s overproduction of output. The difference that happens between equilibrium output and efficient output is the equilibrium output is focused on the profit-maximizing output of a firm (strictly focused on the monetization), and the efficient output is making the most quantity output. When negative externalities are present, the equilibrium output is focused on maximizing the losses, while the efficient output is focused on the most output they can get out of the situation. Same thing with positive externalities.
• Government intervention is asked to step in to earn economic efficiency when externalities affect a vast number of people or when community interests are in jeopardy. The government can use direct powers and taxes to counter negative externalities; it may provide subsidies or public goods to deal with positive externalities. An external cost would be subsidies to buyers. An external benefit from that would be the privilege of being in the best country in the world.

Q5: Why are spillover costs and spillover benefits also called negative and positive externalities? Show graphically how a tax can correct for a negative externality and how a subsidy to producers can correct for a positive externality. How does a subsidy to consumers differ from a subsidy to producers in correcting for a positive externality?

• A spillover cost is just another term for overproduction; having an abundance of supply to demand. That would be a negative externality. A spillover benefit is also another term for underproduction; having leftover assets to “benefit” from. That would be called a positive externality. A tax can correct for a negative externality by raising the price of the product. A subsidy to producers can correct a positive externality (under allocation) because they can receive more benefit off the product. A subsidy to consumers is hurting demand, while a subsidy to consumers is enhancing demand.