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Question 1
Show and explain how each of the following will affect the current supply (Increase supply or
Decrease Supply) for bicycle.
The rise in wage rate will increase the cost of bicycle and thus suppliers will not be willing
to supply at the same quantity as they did before as they will increase their prices to meet
the high costs. Hence the quantity supplied at each price level will change causing supply to
decrease.
Question 2
Consider the following statements. Show and explain whether the demand curve will shift
leftward/downward or rightward/upward.
Question 3
Consider the car market during 2018-2019. The equilibrium price of cars remained constant, but
the equilibrium quantity of cars increased. What will be the effect on supply and demand of cars
between 2018 and 2019? Draw a graph and explain.
Answer:
Consider the car market during 2018-2019. The equilibrium price of cars remained constant,
but the equilibrium quantity of cars increased. What will be the effect on supply and demand
of cars between 2018 and 2019? Draw a graph and explain.
The supply and demand of cars in will increase from 2018 to 2019 and will due to facators
other than own price (price of cars).
Both the demand and supply curve will shift rightward. The supply curve will shift rightward
and downward from s2018 to s2019 while Demand curve will shift rightward/upward from
D2018 to D2019. The equlibrium price will remain constant at EP while equilibrium quantity
Due to innovation, cost of production is reduced. Thus in same cost, producers can
produce more number of goods.
This will shift supply curve right side. New supply curve will be S2
Equilibrium price will increase from P1 to P2 and equilibrium quantity will also
increase from Q1 to Q2
Question 5
Consider the market for soft drinks in Canada, where there are over a thousand stores that sell
soft drinks at any given moment. Suppose the health authority issues a public warning that
consuming soft drinks is not good for health. Holding all other factors constant, what will be the
effect on market? Draw a graph and explain.
Ans:
Due to health warning, people will reduce consumption because this will be
dangerous to health.
This will shift demand from D to D1
This will reduce price from P1 to P2 and quantity will be also reduced from Q1 to Q2
Question 6
The following table contains information about the wheat market. Use the table to answer the
following questions.
Price per bushel (in $) Quantity Demanded (bushels) Quantity Supplied (bushels)
2 40,000 0
4 36,000 4,000
6 30,000 8,000
8 24,000 16,000
10 20,000 20,000
12 18,000 28,000
14 12,000 36,000
16 6,000 40,000
b) Suppose the prevailing price is US$12 per bushel. Is there a shortage or a surplus in the
market?
Answer:
If price is $12,
When P = $12, demand is 18000 units and supply is 28000 units
Price is above equilibrium price which will result in surplus.
d) How many bushels will be sold if the market price is US$4 per bushel?
Answer:
When P = $4, number of units sold
e) If the market price is US$8 per bushel, what must happen to restore equilibrium in the
market? Explain
Answer:
If market price is $8
f) Suppose the market price is US$16 per bushel. Is there a shortage or a surplus in the
market?
Answer:
If market price is $16
(SHORTAGE)
h) How many bushels will be sold if the market price is US$14 per bushel?
Answer:
If the surplus is restrained from the market then the demand i-e 12000 units , will be the
number of sold bushels
But keeping the universal rule of economics and standard situations , the rate will fall , as
it may tend to touch $10 per bushel so that all of the supply will be sold with less loss.
i) If the market price is US$16 per bushel, what must happen to restore equilibrium in the
market? Explain
Answer:
It is the case of Surplus , that there is more supply than the demand
The dealers must overcome this situation as the product if returned back will cost
him loss i-e in the form of lodging in out and transportation and re-agreement
charges / costs.
To achieve the equilibrium the price must be lowered to approx. $10 where there
is equilibrium.