Question

9. Refer to the following table, is there a surplus or shortage if the market price = $6? How much is it?

Price   Quantity Quantity

Demanded.     Supplied

$10.00   10 100

$8.00   20   80

$6.00    30 60

$4.00   40 40

$2.00   50 20

$0.00   60 0

10. The price of raw materials for producing good A increases. What happens to the equilibrium price of good A?

11. The economy is experiencing a recession. Suppose ramen noodles is an inferior good. What happens to the equilibrium quantity of ramen noodles?

12. Consider the following graph which shows the market for laptops. Give one possible scenario such that demand curve shifts from D1 to D3.

8:59 CH | 0 Th1 990 Times New Rome 14 BIų A. 12. Consider the following graph which shows the market for laptops. Give one possible scenario such that demand curve shifts from D, to Dz. s P P 2 P, D2 P D D. Q3 Q 13. How much is the price elasticity of supply if the supply curve is vertical?

Answer 1

9.

At the price level of $6,

Quantity demanded = 30

Quantity supplied = 60

Since, the quantity supplied is more than the quantity demanded, then there is surplus at price of $6.

Size of the surplus = 60-30

Size of the surplus = 30 units

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10.

Equilibrium price is going to increase, because rise in price of raw materials, is going to increase the cost of production of good A. It makes supply curve to shift to the left and price increases at the new equilibrium.

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11.

Equilibrium quantity of Ramen noodles will increase. It will happen, because recession in the economy, will cause income of the people to decrease and people will demand more of Ramen noodles as Ramen noodles is inferior goods.

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12.

It is the decrease in income of the people that causes demand curve to shift from D1 to D3. The shift from D1 to D3 is an indication of decrease in demand computer that happens when income level decreases in case of normal goods (computers).

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13.

Price elasticity of supply = 0

when supply curve is vertical.