Download HW2 - WordPress.com

Home Work 1
Demand-Supply Interaction
Code:
Contents:
Instructor:
Econ-100 Fundamentals of Economics
Demand & Supply
Professor Dr. Babar Aziz
Class:
CO Reference:
Date:
BS CN (4th)
Week 4-7
April 10, 2017
Question # 1: Critical Thinking
Demand curves of M and N commodities are given. Label the diagrams and comment that which
commodity is more price responsive (elastic) and which is less price responsive (inelastic). How you
conclude this?
M
Commodity
N
Commodity
Question # 2: Determining Cause and Effect
How an increase in price of certain commodity is going to affect the Total revenue in case of elastic,
inelastic and unitary elastic case?
Question # 3: Determining Cause and Effect
Razor blades are complementary goods for razor handles, while electric razors are substitutes. Make
general demand curves for both. Then show how the rise in the cost of razor handles, if they were sold
separately, would affect the demand curves for its complementary and its substitute products.
Question # 4: Main Idea Description
Use a graphic organizer like the one below to describe the three determinants of demand elasticity.
Determinant
Description
Question # 5: Critical Thinking
Think about two commodities i.e. commodity A and commodity B. The share of commodity A’s
expenditure in total expenditure is 0.5%, whereas share of commodity B’s expenditure in total
expenditure is 35%. Which commodity is elastic and why?
Question # 6: Synthesizing
Assume that you are a business owner. How would you use your knowledge of demand elasticity to
determine the price of your product?
Question # 7: Economic Thinking
Write a paragraph describing a business you might like to own. Describe the product your business makes.
Then use the three determinants of demand elasticity to predict the elasticity of demand for that product.
Explain the pricing policy you would use to get consumers to maximize their expenditures on that product.
Question # 8: Main Idea Description
Describe the difference between elastic demand and inelastic demand
Question # 9: Main Idea Description
Explain how the total expenditures test can be used to determine demand elasticity.
Question # 10: Main Idea Description
Identify and then describe the determinants of demand elasticity.
Question # 11: Critical Thinking
Why is the demand for airplane ticket inelastic for last minute ticket purchase?
Question # 12: Critical Thinking
The table below shows the price, market demand, market supply, and the surplus and shortage for a firm
providing a product under perfect competition. Study the information in the table, and then answer the
questions below.
Price
10
9
8
7
6
5
4
3
2
Market
Demand
600
???
85
990
???
1300
1470
1650
1840
Market Supply
1550
1500
1450
1400
1350
???
???
1200
1150
Surplus
Shortage
950
780
???
???
210
0
-220
???
-690
/
a. Some of the information is missing from the table. Calculate the correct information.
2
b. What is the equilibrium price? How can you tell?
c. What price(s) will produce a surplus?
d. What price(s) will produce a shortage?
Question # 13: Economic Application
If you were a producer, what might prevent you from increasing the quantity supplied in response to an
increase in price? Explain.
Question # 14: Idea Illustration
In which case will a toymaker offer more fashion dolls: if the company can charge $20 for each doll, or if
it can charge $10 for each doll? Explain your answer.
Question # 15: Describing the Main Idea
How does the quantity supplied change when the price doubles for a unit elastic product?
Question # 16: Critical Thinking Skills
Imagine that gas prices have increased to $5.00 per gallon. What will happen to the supply of fuel-efficient
cars in the short run and in the long run? Explain.
Question # 17: Critical Thinking
Which firm is more likely to have an elastic supply—a candy producer firm or an automobile
manufacturing firm? Explain your answer.
Question # 18: Critical Thinking
Why is the supply for perishable commodities inelastic while for durables it is elastic?
Question # 19: Main Idea Description
Describe the difference between elastic supply and inelastic supply.
Question # 20: Main Idea Description
Identify and then describe the determinants of supply elasticity.
Question # 21: Main Idea Description
Use a graphic organizer like the one below to describe the three determinants of supply elasticity.
Determinant
Description
Question # 22: Critical Thinking
Supply curves of X and Y commodities are given. Label the diagrams and comment that the supply of which
commodity is more price responsive (elastic) and which one is less price responsive (inelastic). How you
conclude this?
3
X
Commodity
Y
Commodity
Question # 23: Determining Cause and Effect
According to the Law of Supply, what will happen to the number of products a firm offers for sale when
prices go down? What will happen if the cost of production increases while prices remain the same?
Question # 24: Economic Analysis
Supply and demand determine the final price of a product. Why does the price differ for the CDs in the
cartoon?
Question # 25: Economics Analysis
Explore Shortage in panel A at price Rs. 10 and surplus in panel B at price Rs. 20.
4
Question # 26: Economics Analysis
Label the following diagram properly and point out the equilibrium price and quantity (e.g. Po and Qo). If
there is an increase in demand then what will happen with the equilibrium price and quantity? Point out
the new equilibrium price and quantity (e.g. P1 and Q1). Explain it using the same diagram.
Question # 27: Economics Analysis
Elaborate law of supply. How will you differentiate between change in supply and change in quantity
supplied? Elaborate it with the help of proper numerical examples and graphical representation as well.
Question # 28: Economics Analysis
How a decrease in price of certain commodity is going to affect the total expenditure in case of elastic,
inelastic and unitary elastic case?
Question # 29: Economics Analysis
A technological improvement lowers the cost of producing coffee. At the same time, consumers'
preferences for coffee increase. What will happen with the equilibrium price of coffee? Explain
graphically.
Question # 30: Economics Analysis
Find the equilibrium price and quantity if Qd  20  2 p and Qs  5  3 p . In addition find elasticity of
demand at equilibrium price and equilibrium quantity.
Question # 31: Economics Analysis
If both demand and supply increase, what will be the effect on the equilibrium price and quantity?
Question # 32: Economics Analysis
Leather belts and leather shoes are substitutes in production. If style changes increase the demand for
leather belts, what will happen with the supply curve of leather shoes: Show it graphically?
Question # 33: Economics Analysis
Let Qd  10  2 p and Qs  5  3 p ; calculate elasticity of demand at equilibrium price and equilibrium
quantity. As a producer how you will change price to increase the total revenue?
5
Question # 34: Economics Analysis
In the figure, the equilibrium price is initially $3 per bushel of wheat. If suppliers come to expect that the
price of a bushel of wheat will rise in the future, but buyers do not, then what will happen with the current
equilibrium price?
6