Question

HOMEWORK SET 4A MARKETS IN ACTION 1 Question 1 refers to the following diagram, which shows the market for computers. 3 Price par computer (thousands oldaten ar 0 10 40 20 30 Quantity of computera Pundydis per wohl 1. Which of the following changes could cause the computer market to change as shown above? . Lower costs for computer chips and motherboards. b. The failure of several computer manufacturers. c. Higher prices for computer software. d. More features and greater ease of use. 2. If the cost of fertilizer falls, then the price of com will 2 rise. c remain unchanged. b. fall. d react unpredictably. 3. Which of the following would lower both the equilibrium price and the equilibrium quantity of strawberries? a. A decrease in the demand for strawberries. b. An increase in the demand for strawberries. c. A decrease in the supply of strawberries d. An increase in the supply of strawberries. The market demand for a product has increased if: A the product price has increased. B. more of the product is produced. C. more of the product can be sold at all possible prices. D. the cost of producing the product decreased due to new technology.

Answer 1

Answer

1. a) Lower costs for computer chips and motherboard.

From the figure, we see that the supply curve of computer has shifted rightward , and the demand curve remains same. The lower costs for computer chips and motherboard decrease the total cost of computer. As a result, the producer will now be able to produce more of computers. Thus the supply of computer rises and the supply curve of computers shifts rightward. As a result, the price of computers decreases.

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2. b) Fall.

If the cost of fertilizer falls, the cost of producing corn will fall. Thus the price of corn will fall. So, if the cost of fertilizer falls, then the price of corn will fall.

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3. a) A decrease in the demand for strawberries.

A decrease in the demand for strawberries will lower both the equilibrium price and quantity of strawberries.

The above figure shows the strawberry market, where the quantity of strawberry is measured on the horizontal axis, and price of it is measured on vertical axis. The curve 'S' is the supply curve of strawberry. The initial demand curve for strawberry is 'D₁' . The initial equilibrium point is 'E₁' , where equilibrium price and quantity of strawberry are 'P₁' , and 'Q₁' respectively. Now, if the demand for strawberry decreases, the demand curve will shift leftward. Let the demand curve shifts to 'D₂'. Thus the equilibrium point shifts to E₂, where the equilibrium price and quantity of strawberry are 'P₂' , and 'Q₂' respectively. P₂ is less than P₁ and Q₂ is less than Q₁. Thus we see that a decrease in the demand for strawberries will lower both the equilibrium price and quantity of strawberries.

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3b. D) The cost of producing the product decreased due to new technology.

The cost of producing the product decreases due to new technology means the average cost of production decreases with the increase of total production. As a result, the price of the product will decrease which in turn will increase the market demand for the product.

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4. b) Reduced crime and better public transportation attract new residents to the city.

From the figure, we see that the demand curve for apartments has shifted rightward, and the supply curve remains same, i.e., the demand for apartments has increased, while the supply is constant. This can happen because the reduced crime and better public transportation attract new residents to the city, which in turn has increases the demand for apartments.

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5. d) Fewer people buying margarine.

If margarine is an inferior good, then with the rise in income,its demand will decrease, i.e., fewer people will buy it.

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6. a) Consumers will pay more for bread.

If there is a decrease in the supply of bread, temporarily a shortage will arise in the market. Thus, the bread price will rise. As a result, the consumers have to pay more for bread.

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7. D) Movement along the demand curve for oranges and a shift in the demand curve for apples.

As the hurricane destroys half of the orange crop, the supply of orange will decrease, and the supply curve of orange will shift leftward. The demand curve for orange will remain same. As the supply of oranges decreases, the price of oranges increases. As a result, the quantity demanded for orange will decrease. So, there will be a movement along the demand curve for orange. Now, as the price of oranges rises, the demand for its substitute,i.e., another fruit, apple rises. Now, at the same price level of apple, as the demand for apple rises, the demand curve for apple will shift rightward. Thus, there is a movement along the demand curve for oranges and a shift in the demand curve for apples.

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