Question

Microeconomics:

1. EXPLAIN AND ILLUSTRATE MARKET EQUILIBRIUM USING THE FOLLOWING DATA:

QUANTITY DEMANDED	PrRICE	QUANTITY SUPPLIED
3,500	P100	10,000
5,000	90	8,500
6,500	80	7,000
8,000	70	5,500
9,500	60	4,000

2. ILLUSTRATE THE EFFECTS OF CHANGES IN DETERMINANTS OF DEMAND AND SUPPLY UPON MARKET EQUILIBRIUM. Elaborate more.

Answer 1

1.

Since the market equilibrium will be at a point where demand and supply curve intersects.

2.

Determinants of demand which affect market equilibrium are;

change in the price of related goods; When price of complements good increase, then the quantity demand of its complements goods decrease. Hence demand curve shifts leftward and vice-versa.

When price of substitutes good increase, then the quantity demand of its substitute goods increase. Hence demand curve shifts rightward and vice-versa.

2.

Income of the consumer; Since when the income of the consumer increases, the demand for it increases, so the demand curve shifts rightward and vice-versa.

3.

Taste and preferences of the consumers; if the taste and preferences of any good increase, the demand for it increases and demand curve of this good shifts rightward and vice-versa.

Determinant of supply curve;

Tax policy; if the tax policy is favourable for the producers, then the production increase and supply increase and supply curve shifts rightward and vice-versa.

Price of inputs; if the price of inputs decreases, the cost of production decreases, so the production increase and supply increase and supply curve shifts rightward and vice-versa.

If only demand curve shifts rightward,quantity increases and price increases and vice-versa.

If only supply curve shifts rightward,quantity increases and price decreases and vice-versa.

If both demand and supply curve shifts rightward, the quantity increases definitely but price is indeterminate and vice-versa.