ASSIGNMENT -1-MAERKET MECHANISM

Q1. The money price of a textbook is $90 and the money price of the Wii game Super Mario
Galaxy is $45.

a. What is the opportunity cost of a textbook in terms of the Wii game?

 A textbook costs 90$ while Wii game costs 45$, by purchasing 1 textbook makes the
buyer give up on 2 Wii games so the opportunity cost of a textbook in terms of Wii
games is 2.

b. What is the relative price of the Wii game in terms of textbooks?

 Since a Wii game is half the price of a text book so we will be giving up almost half
equal of a textbook i.e., ½.

Q2-The demand and supply schedules for gum are

a. Draw a graph of the market for gum and mark in the equilibrium price and
quantity

ECO104-MICRO AND MACRO ECONOMICS

b. Suppose that the price of gum is 70¢ a pack. Describe the situation in the gum market and
explain how the price adjusts.

A. At 70 cents a pack there is surplus gum and the price will fall, as the quantity demanded
is 80 million packs and quantity supplied is 160 million packs the price will fall till the
market equilibrium is at 50 cents a pack.

c. Suppose that the price of gum is 30¢ a pack. Describe the situation in the gum market and
explain how the price adjusts.

A. At 30 cents a pack quantity demanded is 160 million and quantity supplied is 80 million
hence there is a shortage of 80 million packs the prices rise until the market equilibrium
is restored at price of 50 cents .

d. If a fire destroys some factories that produce gum and the quantity of gum supplied
decreases by 40 million packs a week at each price, explain and illustrate the changes that
will occur in the gum market.

e. If at the time the fire occurs there is an increase in the teenage population, which increases
the quantity of gum demanded by 40 million packs a week at each price, what are the new
equilibrium price and quantity of gum? Illustrate these changes on your graph

ECO104-MICRO AND MACRO ECONOMICS

Q2. The following events occur one at a time:
(i) The price of crude oil rises.
(ii) The price of a car rises.
(iii) All speed limits on highways are abolished.
(iv) Robots cut car production costs.
Which of these events will increase or decrease (state which occurs)

a. The demand for gasoline?

A. 1, 2 and 4 will change the demand for gasoline

b. The supply of gasoline?

A. 1 changes the supply of gasoline

c. The quantity of gasoline demanded?

A. 2 changes the quantity of gasoline demanded

d. The quantity of gasoline supplied?

A. 2, 3 and 4 change the quantity of gasoline supplied.

Q3. Consider the markets for film streaming services, TV screens, and tickets at movie theaters.

a. For each pair, identify whether they are complements or substitutes:

i. Film streaming and TV screens

A. complements

ii. Film streaming and movie tickets

A. substitutes

iii. TV screens and movie tickets

A. Complements

b. Suppose a technological advance reduces the cost of manufacturing TV screens. Draw a

diagram to show what happens in the market for TV screens.

ECO104-MICRO AND MACRO ECONOMICS

 c. c. Draw two more diagrams to show how the change in the market for TV screens affects
the markets for film streaming and movie tickets.

Q4. Suppose that the price of basketball tickets at your college is determined by market forces. Currently,
the demand and supply schedules are as follows:

a. Draw the demand and supply curves. What is unusual about this supply curve? Why might this be true?
b. What are the equilibrium price and quantity of tickets?
c. Your college plans to increase total enrollment next year by 5,000 students. The additional students will
have the following demand schedule:

ECO104-MICRO AND MACRO ECONOMICS

Now add the old demand schedule and the demand schedule for the new students to
calculate the new demand schedule for the entire college. What will be the new
equilibrium price and quantity?

ECO104-MICRO AND MACRO ECONOMICS