Question

SUBJECT: MACROECONOMICS

WORD COUNT:1000-1500

The table below shows two demand schedules, 2002 and 2006, and one supply schedule.  

Demand Schedules for Natural Gas Price of natural gas Quantity of natural gas demanded in 2002 in 2006 4.00 3.75 3.50 3.25 3.00 2.75 2.50 Supply Schedule for Natural Gas 7.1 7.5 8.1 8.9 10.0 11.5 14.2 8.5 9.0 9.7 10.7 12.0 13.8 17.0 Price ofnatural gas Quantity of natural gas supplied 4.00 3.75 3.50 3.25 3.00 2.75 2.50 11.6 11.5 11.2 10.7 10.0 9.1 8.0

1. Represent both demand curves and explain why one demand schedule differs from the other (use a graph).
2. Represent the supply curve and explain why is upward / downward.
3. Represent the equilibrium point E and explain why you chose that point.

2. 5. Suppose that business travelers and vacationers have the following demand for airline tickets from New York to Boston:

                                    Quantity Demanded                             Quantity Demanded

Price                             (business travelers)                              (vacationers)

150                                           2,100 tickets                             1,000 tickets

200                                           2,000                                        800

250                                           1,900                                        600

300                                           1,800                                        400

As the price of tickets rises from 200 to 250, what is the price elasticity of demand for (i) business travelers and (ii) vacationers? (Use the midpoint method in your calculations.) Explain the difference.

Answer 1

1. a. The two demand curves are represented as D2002 and D2006. The two demand curves are different in the sense that D2006 is above D2002. This means that at the same price, quantity demanded is more in 2006 as compared to 2002. The demand curves are downward sloping implying the law of demand i.e at higher prices less quantity is demanded.

b. The supply curve is shown as S. The suppy curve is upward sloping and it implies the law of supply. At higher prices producers are willing to supply a higher quantity. The intuition is that for higher quantities to be produced and supplied, marginal costs are higher are so higher prices are required to cover higher costs at higher quantity.

c. The equilibrium occurs at E point where quantity demanded and quantity supplied is equal at a given price. In my graph I have marked both equilibrium as E. One equilibrium occurs at the intersection of D2002 and S and the other equilibrium is for D2006 and S intersection.

Note - be accurate while plotting your graph to avoid any discrepancy.

2002 ਨ 4