Demand, Supply and

Equilibrium price
CQD 7001 - Economics for Management

Kenny Lim Zhi Jiunn S2119697

Nur Azwani Binti Azahar 17182131

Yu Yiping s2149480
Question 1
Consider the demand for computers. For each of the following, state the e ffect on demand:
 An increase in consumer incomes
 An increase in the price of computers
 A decrease in the price of Internet service providers
 A decrease in the price of semiconductors
 It is October, and consumers expect that computers
will go on sale just before Christmas
 The demand for computers may also increase
 Quantity demands for computer may drop
 ISP is a complimentary goods, it will cause the increase of
demand for computers
 The demand for computers will increase.
 Future expectation is one of the non price factors for
computer’s demand. It will attract consumer to demand
more.
Question 2
Consider the supply of computers. For each of the following,
state the effect of supply:
2a) A change in technology that lowers production costs.
Answer: Supply increase

2b) An increase in the price of semiconductors.

Answer : Supply decrease

2c) A decrease in the price of computer.

Answer : Decrease in quantity supply

2d) An increase in wages of computer assembly workers.

Answer: Supply decrease

2e) An increase in consumer incomes.

Answer : No change in supply
Question 3
The demand curve is given by QD = 500 − 5PX + 0.5I + 10PY − 2PZ

where

QD = quantity demanded of good X

PX = price of good X
I = consumer income, in thousands
PY = price of good Y
PZ = price of good Z

 Based on the demand curve above, is X a normal or an inferior  X is normal good because the coefficient is negative.
good?

 Based on the demand curve above, what is the relationship between  Good X and Y may be substitute because they have rela
good X and good Y? demand of good X

 Based on the demand curve above, what is the relationship between  Good X and Z are also substitutes
good X and good Z?
Question 3
 What is the equation of the demand curve if consumer incomes are $30,000, the price of good Y is $10, and the price of good Z is $20?

QD = 500 − 5PX + 0.5(30 000) + 10(10) − 2(20)

QD = 15 560 - 5PX
 Graph the demand curve that you found in d., showing intercepts and slope
Question 3
 If the price of good X is $15, what is the quantity demanded? Show this point on your demand curve.

 Now suppose the price of good Y rises to $15. Graph the new demand curve
 Question 4
Consider the market for Good X
4a) Suppose that consumers do not buy any of Good X at the price of $120, and for every $10 decrease in price, the
quantity consumed increase by 20. Write the equation for the demand curve of Good X.

Price= $ 120
b= ½

Demand equation of Good X is:

P = a- b Qd
P= 120 – (1/2)Qd

P is the price level, Qd is the quantity demanded.

 Question 4
Consider the market for Good X
4b) Suppose that producers do not produce any of Good X at the price of $50, and for every $10 increase in price, the
producers increase the quantity produced by 30. Write the equation for the supply curve of Good X.

Price= $ 50
b= 1/3

Demand equation of Good X is:

P = a- b Qs
P= 50 + (1/3)Qs

P is the price level, Qs is the quantity produced.

 Question 4
Consider the market for Good X
4c) Find the equilibrium price and quantity.

*The equilibrium values are determined by equating the demand and supply.

120-(1/2)Qd = 50 + (1/3)Qs
120 - 50 = 1/3Q +1/2Q
70 = (2Q+3Q)/6
420 = 5Q
Q = 84 units

P=120-(1/2)(84)
=120-42
=$78

Equilibrium price = $78

Equilibrium quantity = 84 units
 Question 4
Consider the market for Good X
4d) At what price does this market have a shortage of 40?
Shortage:
Qd=Qs+40
P=120-1/2Qd Qd=240-2P
P=50+1/3Qs Qs=3P-150
3P-150+40=240-2P
*P=70

4e) At what price does this market have a surplus of 60?

Surplus:
Qd+60=Qs
240-2P+60=3P-150
*P=90
Question 5.
Graph representative supply and demand curves for the breakfast
cereal market, labeling the current equilibrium price and quantity.
Then show the effect on equilibrium price and quantity of each of
the following changes (consider each separately):
a. The price of muffins rises, assuming b. The price of wheat, an input to cereal
muffins and breakfast cereals are production, rises.
substitutes.

Because cereal and muffins are substitutes, a rise

in the price of muffins causes demand for cereal Increase in the price of wheat will lead to a
to increase, which will shift the demand curve to decrease in the supply of cereals because of the
the right. increase of cost. This will shift the supply curve
to left.
c. Consumers expect that cereal prices
will be higher in the future.
Consumers expect higher cereal prices to
increase the amount they buy now, known as
demand, because they can buy it first and store
it for consumption at a lower price. This will
shift the demand curve to right.
.
d. There is a change in technology that makes
production less expensive.
Technological changes make the production
of cereal become cheaper, which leads to an
increase in supply, shifting the supply curve
to the right.
e. New medical reports indicate that eating breakfast is less
important than had previously
been thought.

When consumers learn that breakfast is less important, they demand

less of it, which leads to lower demand for cereal and shifts the
demand curve to the left
Question 6
Consider the market for hamburger, and draw
representative supply and demand curves.

a. Assume that hamburger is an inferior good. Suppose

that consumer incomes fall, and at the same time, an
improvement in technology lowers production costs.
Show this on your graph. If you have no other information,
what can you say about the change in equilibrium price and
quantity?

1) Equilibrium in quantity increases,  2) Equilibrium in quantity increases,  3) Equilibrium in quantity increases, 

equilibrium price maintains the same equilibrium price also increases equilibrium price decreases
 b. Now suppose that you have the additional information that
the change in consumer incomes has been relatively small,
while the reduction in production costs has been relatively
large. How would this change your answer to (a)?

Equilibrium price decreases, equilibrium in quantity increases