MPA – 111 Economics and Public Policy I

Assignment I

No.1 For each of the following statements, draw a diagram that illustrates
the likely effect on the market for eggs. Indicate in each case the impact on
equilibrium price and equilibrium quantity.
a. A surgeon general warns that high-cholesterol foods cause heart
attacks.
b. The price of bacon, a complementary product, decreases.
c. An increase in the price of chicken feed occurs.
d. Caesar salads become trendy at dinner parties. (The dressing is made
with raw eggs.)
e. A technological innovation reduces egg breakage during packing.
Original Situation: Price = P1, Quantity = Q1, Equilibrium = E1
a. A surgeon general warns that high-cholesterol foods cause heart
attacks. People prefer decrease. The demand of eggs is decrease. The
demand curve(D1) is shift to the leftward(D2). This will lead to a decrease
in equilibrium quantity (from Q1 to Q2) and a decrease in equilibrium price
(from P1 to P2).The supply is notchanging.

Price
S1

E1
P1
E2
P2

D1

D2
QTYY
Q2 Q1
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Original Situation: Price = P1, Quantity = Q1, Equilibrium = E1

b. The price of bacon, a complementary product, decreases.The demand
of bacon is increase. Eggs and bacon are complementary products. So, the
demand of eggs is increase. The demand curve(D1) is shifts rightward (D2).
Equilibrium quantity (Q2) and equilibrium price (P2) are increase.

Price

S1

E2
P2
E1
P1

D2

D1
QTYY
Q1 Q2

Original Situation: Price = P1, Quantity = Q1, Equilibrium = E1

c. An increase in the price of chicken feed occurs. The production cost of
eggs is increase. The supply of eggs is decrease. The supply curve(S1) is
shift to the leftward (S2). This will lead to a decrease in equilibrium
quantity (from Q1 to Q2) and an increase in equilibrium price (from P1 to
P2). The demand is not changing.
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Price S2

S1

E2
P2
E1
P1

D1
QTYY
Q2 Q1

Original Situation: Price = P1, Quantity = Q1, Equilibrium = E1

d. Caesar salads become trendy at dinner parties. (The dressing is made
with raw eggs). For the parties dressing, the demand of eggs is increase.
The demand curve (D1) is shift to the rightward (D2).So, equilibrium
quantity (from Q1 to Q2) and equilibrium price (from P1 to P2) are
increase. The supply is not changing.

Price
S1

E2
P2
E1
P1

D2

D1

QTYY
Q1 Q2
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Original Situation: Price = P1, Quantity = Q1, Equilibrium = E1

e. A technological innovation reduces egg breakage during packing. The
production cost of eggs is decrease and the supply of eggs is increase. The
supply curve (S1) is shift to the rightward (S2). Equilibrium quantity (Q2) is
increase and equilibrium price (P1 to P2) is decrease. The demand is not
changing.

Price

S1

S2

E1
P1
E2
P2

D1
QTYY
Q1 Q2

No.2 The following table represents the market for disposable digital
cameras. Plot this data on a supply and demand graph and identify the
equilibrium price and quantity. Explain what would happen if the market
price is set at $30, and show this on the graph. Explain what would happen
if the market price is set at $15, and show this on the graph.
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Equilibrium Price = 20
Equilibrium Quantity = Quantity Demanded = Quantity Supply = 9

If the market price is set at $30, Quantity Demandis 5units and Quantity
Supply is 15units. When price from $20 to $30 is raised, the Surplus of
supply is 10units, quantity demand falls 4 units and quantity supply exceeds
6 units.
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If the market price is set at $15, Quantity Demand is 11units and Quantity
Supply is 6units. When price from $20 to $15 is fell, the Shortage of supply
is 5units, quantity demand exceeds 2 units and quantity supply falls 3 units.

No.3 The market for manicures is made up of five firms, and the data
in the following table represents each firm’s quantity supplied at various
prices. Fill in the column for the quantity supplied in the market, and
draw a supply graph showing the market data.
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Quantity supply by:

Price Firm A Firm B Firm C Firm D Firm E Market

$ 10 3 2 0 2 4 11
$ 20 4 4 2 3 5 18
$ 30 5 6 3 4 7 25
$ 40 6 8 5 5 8 32

Price
S
$40

$30

$20

$10

QTY
11 18 25 32
Supply graph of the market data for manicures