Tutorials -Problems Demand Supply-with solutions PDF

Preview

Summary

Just the Basics of Economics, As we go on we will breach into more on the Subject and as for the Link to the textbook ,I don't have one so please don't spam me with message...

Description

An example for DEMAND and SUPPLY curves. ---- In the Chocolate market , Demand and Supply schedules are as follows; PRICE (cents/week ) 20 30 40 50 60 70 80

Q demanded ( million packs/week) 180 160 140 120 100 80 60

Q supplied ( million packs/week)

NEW Q s

NEW Q d

60 80 100 120 140 160 180

a) Draw the graph of the chocolate market and show the equilibrium price and quantity . Explain. MARKET EQUILIBRIUM is achieved at P= 50 cents/week Q = 120 million packs /week b) Suppose the price level in the chocolate market is set as 60 cents/pack ; Describe the market situation and explain how the price in the market adjusts itself to achieve the equilibrium . AT p=60 cents/week price is ABOVE the equilibrium. At this price level as price is HIGH quantity demanded would be LOW ( LAW of DEMAND = P↑ Qd ↓ ) Consumers demand LESS but producers supply MORE as they would think they could make more profit ( LAW of SUPPLY = P ↑ Qs ↑ ). As demand is LESS than supply at this price level as UNSOLD so market situation is SURPLUS →EXCESS SUPPLY

what is being produced is left → Qs >Qd.

PRICE adjusts itself to achieve the market equilibrium by beginning to DECREASE c) Suppose a big fire has destroyed the chocolate producing factory, thus changing the supply of chocolate by 40 million packs/week .Show the new supply curve and find the new equilibrium price and quantity levels . FIRE is a disaster, thus it would cause the supply to DECREASE by 40 million packs /week. NEW SUPPLY level (TABLEABOVE) .NEW MARKET EQUILIBRIUM at P= 60 cents/week Q = 100 million packs /week d) At the same time, there has been an increase in the teenage population causing a change in the level of demand for chocolates by 40 million packs/week . Show roughly the graph of the new demand curve and the new equilibrium price and quantity levels in the chocolate market.

1

The INCREASE in TEENAGE POPULATION would DEMAND for chocolates by 40 m packs /week . NEW DEMAND would be (see TABLE below)

lead to an

INCREASE the

NEW MARKET EQUILIBRIUM P= 70 cents/week Q = 120 m.packs /week All the answers are shown and market equilibriums are highlighted on the tablebelow. **** This is an example for a market where SUPPLY is DECREASING and DEMAND is INCREASING PRICE (cents/week)

Q demanded ( million packs/week)

20 30

180 160

40

Q supplied ( million packs/week)

NEW Q s

NEW Q d

60 80

60-40=20 80-40=40

180+40=220 160+40=200

140

100

100-40=60

140+40=180

50

120

120

120-40=80

120+40=160

60

100

140

140-40=100

100+40=140

70

80

160

160-40=120

80+40=120

80

60

180

180-40=140

60+40=100

DEMAND – SUPPLY IN CLASS EXERCISE WITHANSWERS 1. Suppose there is an announcement that chocolate causes cancer. What would happen to the equilibrium price and quantity of chocolate? Demand for chocolate decreases causing a leftward shift of demand curve.

2

2.

Suppose that the price of Nestle chocolate increases. If Godiva chocolate is the only competitor in the chocolate market what would happen to the equilibrium price and quantity of Godiva chocolate? Demand for Godiva Chocolate increases because Nestle and Godiva are substitute goods. Causing a rightward shift.

3. Suppose that the price of sugar increases. What would happen to the equilibrium price and quantity of chocolate? The supply for chocolate will decrease because sugar is an input for chocolate, if its price increases the production costs will increase leading a decrease in supply with a leftward shift.

3

4. Incomes increase. In the market for Ipods (normal good) we would expect; Because income increases the demand for this good will shift to right.

5. The price of computer memory chips increases. In the market for computers, we would expect: The supply for computers will decrease because memory chips are inputs for computers, if their price increases the production costs will increase leading a decrease in supply with a leftward shift.

4...