Assignment 3: Supply, Demand, Government In The Market

Assignment 3 Supply Demand Government In The Marketsa Doctoral St

Using Microsoft Excel, draw a graph illustrating the supply and demand in this market. What is the equilibrium Price and Quantity in the market? Now suppose the government imposes a special tax on these computers. Describe what would happen in this market in terms of the supply and demand curve. Disregard the new tax in part three. Now assume that the government imposes a price ceiling of $100 in this market, as a result of protests of price gouging by the sellers. What would happen to the price and quantity in this market? Disregard the events of part four. Assume that the manufacturers of this product lobby the government’s lawmakers, in terms of this product being an essential for college students but they are considering halting production due to the lack of profits. The lawmakers agree and now set a price floor at $150. What would happen in this market? If consumers’ expectations were such that they were concerned about the economy and jobs, what would you think would happen in this market? Present your analysis in Excel format. Enter non-numerical responses in the same worksheet using textboxes.

Paper For Above instruction

Understanding the dynamics of supply and demand in markets is fundamental for analyzing economic policies and their impacts. This paper explores the supply and demand for handheld computers based on a hypothetical study presented through various scenarios, including the effects of taxes, price ceilings and floors, and consumer expectations, employing graphical analysis via Microsoft Excel.

Introduction

The market equilibrium, where the quantity demanded by consumers equals the quantity supplied by producers, reflects the natural intersection of demand and supply curves. Analyzing shifts in this equilibrium caused by government interventions helps economists predict potential market outcomes such as shortages, surpluses, or price distortions.

Initial Market Conditions and Equilibrium

The study provides demand and supply schedules for handheld computers. To visualize this, one would plot the quantities demanded and supplied against different price points in Excel, drawing the respective demand and supply curves. The equilibrium price and quantity are identified at the intersection point where the height of the demand curve equals the height of the supply curve. This point signifies the market-clearing price where there’s no tendency for the price to change unless influenced by external factors.

For example, if the demand schedule indicates that at $200, the quantity demanded is 100 units, and supply is 100 units, then $200 and 100 units represent the equilibrium price and quantity.

Impact of a Special Tax

Introducing a tax shifts the supply curve vertically upward by the amount of the tax, reflecting increased costs for producers. As a consequence, the new supply curve intersects the demand curve at a higher price level and a lower quantity than before. Consumers pay more, and producers receive less net revenue after tax, leading to a reduction in quantity traded and potentially a decrease in total market welfare.

Graphically, in Excel, this involves moving the original supply curve upward and noting the new intersection point with the demand curve. This scenario illustrates the classic tax incidence, whereby both consumers and producers share the tax burden depending on the relative elasticities of demand and supply.

Effects of a Price Ceiling

Implementing a price ceiling at $100, which is below the equilibrium price, creates a binding constraint leading to a shortage—the quantity demanded exceeds the quantity supplied at that price. This situation often results in long lines, rationing, or black markets, reflecting market inefficiency due to artificially imposed price limits. In Excel, the demand and supply curves are held constant while the price is capped at $100, and the resulting quantities are observed. A shortage emerges as the difference between the high demand and low supply quantities at this token price.

Effects of a Price Floor

Setting a price floor at $150, above the equilibrium, results in a surplus, as the higher mandated price discourages some consumers from purchasing while incentivizing producers to supply more. If producers consider halting production due to low profits, the supply might decrease, shifting the supply curve leftward. The surplus persists unless other market adjustments occur. If the product is deemed essential but unprofitable, the government may need to intervene further, possibly subsidizing production. In Excel, this scenario involves plotting a horizontal line at $150 and observing the resulting surplus volume, as well as the potential impact of supply shifts due to production halts.

Market Expectations and Economic Concerns

If consumers are worried about the economy and potential job losses, their demand for handheld computers might decrease, shifting the demand curve leftward. This decline reflects reduced purchasing power or prioritization of essential goods over electronics, further depressing prices and quantities. In Excel, this is represented by a new demand curve positioned to the left of the original, illustrating decreased demand. The combined effect would lead to a lower equilibrium price and quantity, emphasizing the sensitivity of the market to consumer sentiment and macroeconomic conditions.

Conclusion

Analyzing the hypothetical scenarios through graphical and numerical methods in Excel reveals the complex interactions between market forces and government interventions. Taxes tend to decrease supply, raising prices and reducing quantities; price ceilings cause shortages; price floors create surpluses; and consumer expectations significantly influence demand. Understanding these mechanisms equips policymakers to better anticipate the consequences of their actions and design more effective economic policies.

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