Question

1. eleanor owns a bakery. she charges $5 per loaf of bread. at the price of $5, she is willing to bake 20 loaves of bread a day. she sells out of bread before the end of the day, and consumers line up to purchase bread before she opens. does this suggest that the equilibrium price of bread is higher, lower, or equal to $5? 4. suppose you are helping john study for his economics exam. he provides the following answer to a question. identify the key mistake in his reasoning: question: suppose the market for shoes is in equilibrium. if the price of leather (an input) rises, what will happen to prices and quantities? john’s answer: if the price of leather rises, the supply of shoes will decrease. a decrease in the supply of shoes will increase prices and reduce quantities. an increase in the price of shoes will decrease the demand for shoes. the decrease in demand for shoes will reduce prices and reduce quantities. overall, both demand and supply will decrease, so quantities will decrease, but the change in prices will be ambiguous. 5. suppose the market for cell phones is in equilibrium. the price and quantity of cell phones rise. consider the following shifts in supply and demand. which of the following combinations are consistent with both prices and quantities rising? identify all which may apply. a) supply and demand did not change b) demand increased c) demand increased and supply decreased d) demand decreased and supply increased

Explanation:

Step1: Analyze question 3

At a price of $5, there is excess demand as consumers line - up before she opens and she sells out. In a market, when there is excess demand, the equilibrium price is higher.

Step2: Analyze question 4

John confuses a change in quantity demanded (movement along the demand curve) with a change in demand (shift of the demand curve). When the price of leather (an input) rises, supply of shoes decreases. This causes a movement along the demand curve, not a shift in demand.

Step3: Analyze question 5

When demand increases, the demand curve shifts to the right. This causes both price and quantity to increase. If demand increases and supply decreases, the price will definitely increase, and the quantity change is ambiguous. But in some cases, quantity can also increase. When supply and demand do not change, price and quantity remain the same. When demand decreases and supply increases, price decreases.

Answer:

1. The equilibrium price of bread is higher than $5.
2. John confuses movement along the demand curve with a shift of the demand curve.
3. b) Demand increased; c) Demand increased and supply decreased.