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Question 1 Consider the demand for computers.

For each of the following, state the effect on demand: a) An increase in consumer incomes: Firstly, we must have to say that computer is a normal good. So if the purchasers incomes rise, they will cause a greater demand for computers. b) An increase in the price of computers The demand for computes will be reduced. As the price of computers and demand for computer vary inversely. c) A decrease in the price of internet service providers Internet service providers, typically, is a complimentary service for computes. Thus, a decrease in the price of Internet service will cause consumers to gain their consumption of computers and their demand for computer, since computers and Internet services are used together. d) A decrease in the price of semiconductors. In fact, semiconductor is a material used to generate computers. Therefore, it will effect to the supply for computers rather than impact to demand for computers. e) It is October, and the consumers expect that computers will go on sale just before Christmas. It simply means that the purchasers future expectation is a lower price of computers on December. Therefore, their current demand will be smaller than if they do not have that expectation. Question 3 QD=500-5Px+0.5I+10Py-2Pz a) Based on the demand curve above, is X a normal or an inferior good? The function reveals a positive relationship between demand and income, so X is a normal good. b) Based on the demand curve above, what is the relationship between good X and good Y? As we can see if the price of good Y rises, the quantity demanded by the consumers of good X will increase. Thus, it is apparent that good Y is substitute good of good X. c) Based on the demand curve above, what is the relationship between good X and good Z? If the price of good Z rises, the quantity demanded by the consumers of good X will decrease. Thus, it is obvious that good Z is complimentary good of good X.

d) What is the equation of the demand curve if consumer incomes are $30,000, the price of good Y is $10, and the price of good Z is $20? Substituting these values into the equation gives: QD=500-5Px+0.5(30)+10(10)-2(20) QD=575-5Px e) Graph the demand curve that you found in (d), showing intercepts and slope.
140! 120! 115! 100!

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f) If the price of good X is $15, what is the quantity demanded? Show this point on your demand curve. If the price of good X is $15,the quantity demanded is 500 items QD=575-5Px=575-75=500

g/Now suppose the price of good Y rises to $15. Graph the new demand curve. QD=500-5Px+0.5(30)+10(15)-2(20)=625-5Px

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120! 100! 80! 60! 40! 20! 0! 0! 100! 200! 300! 400! 500! 600!625

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Question 5/ Suppose the demand and supply curves for a product are given by "QD =500#2P QS = #100 + 3P a. Graph the supply and demand curves."

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b. Find the equilibrium price and quantity." QD=QS 500-2P=-100+3P P= PE =120 and QE = 260 The resulting equilibrium price is $120, and the equilibrium quantity is 260

c. If the current price of the product is $100, what is the quantity supplied and the quantity demanded? How would you describe this situation, and what would you expect to happen in this market? Current price of the product is $100,so: QD =500#2(100)=300 QS = #100 + 3(100)=200 In this situation, at the current price of the product is $100, the quantity of the good demanded by the consumer is higher than the quantity producers are willing to supply. Therefore, this creates a shortage of good. Because there are more purchaser willing to pay a higher price for the product than $100, so the product price obviously raise. As a result, the producers will supply a greater quantity. After these processes, a new equilibrium price will be reached and quantity demanded will be equal to quantity supplied. d. If the current price of the product is $150, what is the quantity supplied and the quantity demanded? How would you describe this situation, and what would you expect to happen in this market? Current price of the product is $150, so: QD =500#2(150)=200 QS = #100 + 3(150)=350 In this situation, at the current price of the product is $150, the quantity of the good demanded by the consumer is less than the quantity producers are willing to supply. Therefore, this causes a surplus of good. Because there are more producers willing to supply at the price of $150 while the quantity demanded by the customers is smaller than that, so the product price obviously will reduce. As a result, the purchasers will consume a greater quantity. After these processes, a new equilibrium price will be reached and quantity demanded will be equal to quantity supplied.

e. Suppose that demand changes to QD = 600 2P. Find the new equilibrium price and quantity, and show this on your graph. QD =600#2P QS = #100 + 3P QD=QS 600-2P=-100+3P P= PE =140 and QE = 320 The new resulting equilibrium price is $140, and the equilibrium quantity is 320

Demand and Supply curves !


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Question 7: Consider the market for automobiles, and draw representative supply and demand curves. a. Suppose that the price of gasoline rises, and at the same time, the price of steel (an input to automobile production) falls. Show this on your graph. If you have no other information, what can you say about the change in equilibrium price and quantity? In the case of price of gasoline gain, the quantity of car demanded by the consumers will be decreased as a result, otherwise the price of steel declined make the producer supply more car into the market.

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These graphs show an increase in supply (from point A to point B) combined with a decrease in demand (from point B to point C). Both of these shifts in the curves cause a smaller equilibrium price (a growth from point P0 to P2 ) . Nevertheless, the direction of the quantity change relies on the magnitude of the shift in each curve. If the rise of supply is greater than the decline of demand, the new equilibrium quantity will increase, as shown in first graph. Otherwise, the equilibrium quantity will fall if the increase of supply is less than the increase of demand, as shown in second graph. 8# 29# 2!# :# $9# ;# 7+# 7,# 7!# $!# 7#

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b. Now suppose that you have the additional information that the rise in gasoline prices has been relatively large, while the reduction in steel costs has been relatively small. How would this change your answer to (a)? The rise in petrol prices has been huge while the fall in steel expends has been small. Thus, this phenomenon will result in the increase in supply is less than the decrease in demand. As a result, both equilibrium price and equilibrium quantity will be smaller than the beginning price and quantity (P0 and Q0)

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