Question

12. Consider the following graph which shows the market for laptops. Give one possible scenario such that demand curve shifts from D to Dz. P 0 13. How much is the price elasticity of supply if the supply curve is vertical? 14. Consider the demand for good E. If the number of substitutes for good E decreases, will the demand become more elastic? 15. Refer to the accompanying table, calculate the price elasticity of demand for erasers if the price of erasers decreases from $2.5 to $1 using the midpoint method. Price of Quantity Demanded Quantity Demanded Erasers of Erasers of Pencils S.SO 10 12 $1.00 8 11 $1.50 7 10 $2.00 6 9 $2.50 5 16. Consider the following table. Suppose quantity supplied increases by 30 for every price level. Find the new equilibrium price. Price Demanded Supplied Quantity |Quantity) 100 80 $10.00 10 $8.00 20 S6.0030 $4,00 40 S2/00 SO 40 20 SO 60 D

Answer 1

12. A possible scenario when the demand curve shifts left(from D1 to D3) is when there is a fall in consumer income levels. Thus people will demand less of that good(laptops) and the demand curve shifts to the left.

13. If the supply curve is vertical, supply is perfectly inelastic, i.e. there is no response of demand to that of change in prices. Hence, the price elasticity of supply = 0.

14. Normally, if there are more number of substitutes for a good, demand is more elastic, i.e. there is a greater change in quantity demanded with respect to a change in price. But, if the number of substitutes decrease for a good E, then demand will become more inelastic.

15.


16. If Quantity supplied increases by 30 for every level of price, the new equilibrium price = $2.00.
Since, at this price, quantity demanded (= 50) and quantity supplied (= 20 + 30 = 50), are equal.

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