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Leather jackets can be considered as a substitute good for sweatshirts. The price of a
substitute good for sweatshirts decreases causing the demand to rise. This will shift
the demand curve to the left, with a new equilibrium price that’s lower, along with the
quantity.
Such types of attire could include sweatshirts, which means that they will need more
sweatshirts if all colleges require morning exercise in appropriate attire. This will shift
the curve to the right, raising the equilibrium point and increasing price and quantity
of sweatshirts.
This advancement in the technology of knitting machines will result in the increased
productivity of a good or service. With new machines invented, producers can
produce more during the same time period and factors of production. As a result, the
production of sweatshirts will increase, which increases supply. The supply curve will
shift the right and the new equilibrium price will be lower with higher quantity.
2. Quantity demanded is the amount of goods or services that consumers are willing
or able to buy in the market.
(a) Quantity supplied is the amount of goods or services that producers are willing or
able to sell.
Normal Good: If income increases, demand will increase and vice versa. This shifts
the curve to the right.
Inferior Good: If income increases, demand will decrease and vice versa. This shifts
the curve to the left.
Complementary Goods: 2 goods where an increase in one good will decrease the
demand for the other. This shifts the curve to the left.
Expectations:
Expecting an increase in income in the future will increase demand, shifting the curve
to the right and vice versa.
Expecting an increase in future prices will increase demand, shifting the curve to the
right.
(c) Let's consider the impact of change in income on the market of bananas. With a
rise in the income of the consumers, the demand for bananas will increase. Those who
were not able to purchase bananas due to lesser income can now purchase them. In the
diagram, the initial demand curve was DD at price P, and the quantity demanded is Q.
When the income of the consumers' increases, more consumers will now able to
purchase bananas. This will shift the demand curve DD to the right at DD 1, at the
same price P. But, the shift will increase the quantity from Q to Q 1.
(d) Factors that shift the supply curve:
Costs of Inputs:
When the costs of inputs rises, supply will decrease and shift the curve to the left (and
vice versa)
Technology:
Expectations:
If sellers were to expect that future prices will decrease, supply will increase and shift
the curve to the right (and vice versa)
(e) Let's consider a change in technology in the scooter market. With the change in
technology and adopting advanced technology, say a new parts-assembling machine is
introduced in a market, production will increase their efficiency to produce the
number scooters in a specific time. They can now produce more scooters in the same
time. With the rise in the production of scooters, the supplier can offer more scooters
in the market, increasing the supply of scooters in the market. This will shift the
original supply curve towards the right. In the diagram, the initial supply of scooters,
at price P, is represented by demand curve DD, with quantity as Q. With a rise in the
production and the supply curve will shift towards right and reach new supply curve
as SS1, at the same price P, at an increase in the quantity from Q to Q 1.
(f) Let's consider an Increase in the consumers' income, this will result in the
increased price of one of the factors of production i.e. labor. With an increase in these
factors, the equilibrium of the minivan will change. Due to an increase in income, the
demand for minivans will increase and the demand curve will shift towards the right.
With an increase in the price of the factor of production, producing the minivans will
incur more cost, thus the producer will reduce its production, resulting in a fall in the
supply of the minivans, which will shift the supply curve towards the left. If the
proportion of change in demand and supply is the same, it will increase the price of
minivans but no change in the quantity. But if the changes are not in proportion, the
quantity may increase or decrease but the equilibrium price will definitely rise.
3. (a) Here the supply curve is perfectly inelastic. In other words, the change in the
price of a basketball ticket has no impact on the quantity supplied. This may be true
because all the students have to attend the basketball match.
(b) The equilibrium is set where the demand and the supply are the same. Thus, here
the equilibrium price is at $8, and the equilibrium quantity of tickets is 8,000.
(c) With increased enrollment the new demand schedule will be the total quantity
demanded at various prices.
Quantit Total
Quantity
Pri y Quantit
Demanded (
ce Deman y
With new
ded Deman
enrollments)
(Initial) ded
Equilibrium is where QD = QS
(c) Subway rides during the next six months or subway rides during the next five
years. The subway ride during the next five years will be more elastic because with an
increase in the time period the demand elasticity increases.
(d) Root beer or water. The demand for root beer is more elastic. Since water is a
necessity, the elasticity of demand is inelastic.
(e) Insulin or Tylenol. Tylenol has more elastic demand as it has many substitutes but,
for a diabetic Insulin is a necessity thus has a more inelastic demand.
(f) Food or bananas. Banana has more elastic demand as it can be substituted for any
other fruit. But food is a necessity for survival thus, has an inelastic demand.
6. (a) As the price changes from $1 to $2, the value of price elasticity of demand is
200
(b) As the price changes from $1 to $2, what is the value of price elasticity of supply?
(c) The supply curve is almost unit elastic (Es = 1.07). In other words, the change in
the price leads to an almost equal proportional change in the supply of the lemonade.
The demand curve is highly elastic (Ed = 200). In other words, the change in price
leads to a greater proportion of change in the quantity demanded.
(d) Cross elasticity demand = Percentage change in the quantity Orange juice/
Percentage change in the Price of lemonade = [(190-150)/150]/[(2-1)/1] = (40/150)/1
= 0.267
(e) Orange juice and lemonade are substitutes because the cross elasticity of demand
is positive.
Percentage change in Price = {(P2-P1) / [(P2+P1)/2]} X 100, where P1 is initial Price and
P2 is new Price.
The price elasticity of demand for business travelers is 0.23 and for vacationers is
1.28.
(b) The demand for travel tickets for Vacationers is more elastic than business
travelers. For business travelers it is a necessity as they have to travel during the said
time, On the other hand, for vacationers if they find the prices higher they can opt for
the times when they can get their comfortable prices.
8. (a) Percentage change in the quantity of heating oil in the short run is less than the
percentage change in the long-run.
9. (a) When the price floor is set above the equilibrium it is called the binding price
floor. A binding price floor is beneficial for the suppliers or the producers as it creates
a surplus of goods and services.
(b) The price floor reduces the total revenue, despite being beneficial to the suppliers
when the demand curve for the product is elastic. The elastic demand curve represents
that the change in price leads to a greater proportion of change in the quantity
demanded. During binding floor price, the price of the cheese will increase, but with
the elastic demand curve, the fall in the demand will much higher.
(c) Producers will benefit from this because they will sell their cheese at a higher
price. Consumers will be at a loss because consumer surplus will decrease.