Asgment 3 PDF

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Assignment 3 Chapter 3 ECON 2010 1) Explain(the(law(of(demand.(Why(does(a(demand(curve(slope(downward?(How(is(a( market(demand(curve(derived(from(individual(demand(curves? The law of Demand shows that with an increase in price, there is a decrease in quantity and vice versa. The slope of a demand curve is downward because the demand lower prices makes quantity demanded increase. The market demand curve is the summation of all individual demand curves.

2) Explain(the(law(of(supply.(Why(does(the(supply(curve(slope(upward?(How(is(the(market( supply(curve(derived(from(the(supply(curves(of(individual(producers? An increase in quantity supplied as price increases and vice versa. The upward slope is because of the increase of price also causes an increase in quantity supplied. The market supply curve is derived by horizontally adding the individual supply curves.

3) What(are(the(determinants(of(demand?(What(happens(to(the(demand(curve(when(any( movement(along(a(fixed(demand(curve,(noting(the(cause(s)(of(each.( Income, Price of other (related) goods/services, Population ,Advertising, Expectation, and Tastes. A decrease in price leads to movement down the demand curve, or an increase in quantity demanded. Increased price leads to movement up the demand curve, or a decrease in quantity demanded.

4) What(are(the(determinants(of(supply?(What(happens(to(the(supply(curve(when(any(of( these(determinants(changes?(Distinguish(between(a(change(in(supply(and(a(change(in( the(quantity(supplied,(noting(the(cause(s)(of(each. The price of the commodity. As price increases, the quantity supplied increases. An increase in price causes a movement up a given supply curve. A decrease in price causes a movement down a given supply curve.

5) What(do(economists(mean(when(they(say,(“Price(floors(and(ceilings(stifle(the(rationing( function(of(prices(and(distort(resource(allocation”? Price floors and ceilings prevent price movements to correct these imbalances. When a price is set above equilibrium, sellers will produce mo than the market can support, diverting resources away from more highly valued uses. Price ceilings result in an underallocation of resources toward a particular good, where the excess demand more than what the market currently offers

6) A(price(ceiling(will(result(in(a(shortage(only(if(the(ceiling(price(is(____________(the( equilibrium(price a) less(than b) equal(to c) greater(than 7) Suppose(that(in(the(market(for(computer(memory(chips,(the(equilibrium(price(is($50(per( chip.(If(the(current(price(is($55(per(chip,(then(there(will(be(a(n)(______________(of( memory(chips. a) Shortage b) surplus. c) equilibrium(quantity. d) none(of(the(above. 8) True%or%False:(A(“change(in(quantity(demanded”(is(a(shift(of(the(entire(demand(curve(to( the(right(or(to(the(left.

FALSE...