Question

(2)The following equations describe the market for commodity X. Q(p) = 10 + 3P ........................ (1) Q(p) = 15-2P ........ (a)Which of the two equations is the demand equation and which is the supply equation? Explain. (b)Find the equilibrium price and the equilibrium quantity transacted in this market. (C)Find the price elasticity of demand at equilibrium and comment on how the firm could use this information if it considers a price adjustment that seeks to maximize its total revenue. (d) Suppose the adoption of a new technology improves the efficiency of producing this product by 3 units, what would be the impact of the new technology on equilibrium price and equilibrium quantity transacted in this market? (e)Assume a supply shock (prior to the adoption of the new technology) pushes the price of this product $0.75 above equilibrium, comment on the state of instability in this market. (3)Use appropriate graphical illustrations to show how each of the following affects the equilibrium price and the equilibrium quantity in the market for commodity Z. Explain each diagram. (a)A favorable shift in consumer preferences for this product. (b)A significant increase in the minimum real wage paid for the use of labor resources. (C)A fall in the price of commodity Y considered to be a substitute for commodity Z. (d) A severe weather condition that negatively impacts the production and the supply of commodity Z.

Only need question 3a,3b,3c,3d answers please.

Answer 1

3. a. For a favorable shift in consumer preferences, demand for Z would increases, shifting the demand curve for Z to the right.

Demand curve shifts from being the green curve to the purple curve. The new equilibrium price and quantity is greater than the original equilibrium quantity and price.

b. When minimum labor wage increases, it becomes more expensive for the producer to produce Z. This decreases the supply of Z which shifts the supply curve of Z to the left.

The supply curve shifts from being the red curve to being the black curve. The new equilibrium price is higher than the original equilibrium price. The new equilibrium quantity is lower.

c. When the price of a substitute decreases, consumers shift their consumption to the substitute good. This decreases the demand for Z which shifts the demand for Z to the left.

The demand curve shifts from being the green curve to being the purple curve. The new equilibrium quantity is lower than the original equilibrium quantity. The new equilibrium price is lower than the original equilibrium price.

d. This would decrease the supply of Z leading to a leftward shift of the supply curve of Z.

The supply curve shifts from being the red curve to being the black curve. The new equilibrium price is higher than the original equilibrium price. The new equilibrium quantity is lower.