Question 1

The key ingredients for the creation of economic demand are the ability or
willingness of customers to buy the goods and services. The ability and willingness
of customers would affect their needs and wants to the goods and services whether
they are able to buy or not. This is because customers have different income, tastes
and preferences. This would create economic demand if the customers are willing to
buy, the firm will produce more goods and services to fulfil the demand.

Other than that, the value or worth of goods and services is also the key ingredient
for the creation of economic demand. The value of goods and services is determined
by satisfaction and utility through consumption. This is because customers are
attempting to maximize their satisfaction or total utility that is provided by the goods
and services acquired. This would help firms measure the value which is profitability
created through resource employment.

Question 2
The key ingredients for the creation of economic supply is willingness or ability to
supply goods and services. When there is an opportunity to earn revenue or increase
profitability, firms are willing to enter a market which has customers’ demand to
supply goods and services. If demand increases, the firms will produce more goods
and services and their profit will increase.

Besides that, the creation of economic supply must have an economic capability for
firms to supply goods and services. When the firms unable to supply the goods and
services, the economic supply would not be created. Hence, firms must be able to
supply goods and services as well as willingness of firms to supply so that economic
supply can be created.

Question 3
Direct demand is the demand for goods and services for consumption. This model
refers to the demand by customers according to the utility such as happiness, or
satisfaction that directly fulfilled customers’ satisfaction. For example customer but
the bubble tea therefore bubble tea is the direct demand of customers.
However, derived demand refers to the input demand which is derived from the
demand for the production of goods and services for consumption. It would happen
when the derived demand for an input or intermediate good is a result of the demand
for the final consumption of goods and services. For example, the demand for
smartphones will result in the demand for glasses. Hence, glasses is the derived
demand to produce smartphones.

Question 4
The objective of the SHMMP scheme is to make sure these essential goods more
affordable especially for the low income group.

The problem might occur due to this SHMMP policy will be the sellers might not be
able to maximize their profit. When the government set the ceiling price, sellers
cannot set the price that is higher than the ceiling price therefore the price of sellers
will decrease to the price ceiling. When government set lower price, the demand of
customer increase caused the quantity demand also increase. In this case, the
quantity demand is higher than quantity supply caused the shortage incurred.

Question 5
(a)
Qs =−540+85 PQ D=1,500−30 P

WhenQ s =QD , −540+85 P=1,500−30 P85 P+30 P=1,500+540115 P=2,040

P=RM 17.74

When P=RM 17.74 ,Q D=1,500−30 P Q=1,500−30 ( 17.74 ) Q=967.8units ≈ 968units

(b)
When P=RM 15 ,Qs =−540+85 PQs =−540+85 ( 15 )Qs =735units

Q D=1,500−30 PQ D=1,500−30 ( 15 )Q D=1,050 units

Since Qs is lesser than QD, it caused shortages which means excess demand.
(c)
In this case, the equilibrium price is RM17.74 and for equilibrium quantity is 968
units. When government set the market price of good Y at RM 15, quantity demand
is greater than quantity supply. Thus, it occurs shortage in the market (exceed
demand). However, change in market would affect the price and quantity move
back to the equilibrium. This is because some consumer bid up price to buy Good Y
at the higher price. When there are more consumer are willing to buy Good Y at a
higher price, the price will slowly increase as well as quantity demand also will
decrease. At the same time, the quantity supply will also increase slowly to move
back toward the equilibrium. Therefore, the market will move back to equilibrium.

Question 6
(a)
Demand CurveWhen Q=0 ,

Q D=2,400−40 P0=2,400−40 P When P=0 ,Q D=2,400−40 P

40 P=2,400P=RM 60 Q=2,400−40 ( 0 )Q=2,400units

SupplyCurveWhen Q=0 ,
QS =35 P−4900=35 P−49035 P=490P=RM 14
(b)
Q D=2,400−40 P
QS =35 P−490

WhenQ S =Q D ,

35 P−490=2,400−40 P35 P+40 P=2,400+ 49075 P=2,890P=RM 38.53

When P=RM 38.55 ,Q D=2,400−40 PQ=2,400−40 ( 38.53 ) Q=858.8units ≈ 859 units

Question 7
(a)
Q D=25,000−10,000 P
QS =12,500 P−8,750

WhenQ S =Q D ,

12,500 P−8,750=25,000−10,000 P12,500 P+10,000 P=25,000+8,750

22,500 P=33,750P=RM 1.50

When P=RM 1.50 ,

Q D=25,000−10,000 P Q=25,000−10,000(1.50)Q=10,000 units

(b)
When P=RM 0.80 ,Qs =12,500 P−8,750Qs =12,500(0.80)−8,750 Qs =1,250units

Q D=25,000−10,000 P

Q D=25,000−10,000(0.80)Q D=17,000 units

Since Qs is lesser than QD, it caused shortages which means excess demand.

(c)
Demand CurveWhen Q=0 ,Q D=25,000−10,000 P 0=25,000−10,000 P

10,000 P=25,000P=RM 2.50

When P=0 ,Q D=25,000−10,000 P Q=25,000−10,000(0)

Q=25,000units

SupplyCurveWhen Q=0 ,

QS =12,500 P−8,750 0=12,500 P−8,75012,500 P=8,750P=RM 0.70