Question

Project Objective: This project is to enhance the understanding of linear equsson and system of Inear equations 1. Suppose that you usually consume some ice creams monthly The quantity demanded (In econamics, the quantity demanded of a goods ar service is the total amount that buyers are willing to and able to purchase.) is closed related to many factors Please list some of them you can think of and explain how they affect the quantity demanded. 2. One of the most important factors is the price of the goods or service. Tha following tabie called the demand schedule, describes how the number of ice creams you may consume each month depends on the price of t Please complete the following table. The price of ice-cream in doilar (P) 0.00 0.50 1.00 1.50 2.00 2.50 3.00 The quansity demanded of ice cream (a) cream is $0.00, you wil consume 19 ice creams in month. While the price is $0.50, you will consume 16 ice creams Find the pattern of quantity and try to explain 3. Use x-axis to represent the quantity demanded, and y-axis to represent the price of ice cream. From the table above, draw the graph about the price (P) and the quantity demanded (Q) and find the equation the line. In Economics, the curve is called the demand curve 4. Suppose that this month you get promoted and your salary increases. You will be able to consume one more ice cream under each price. Find the new demand curve when her salary increases. Furthermore, compare these two curves, where does the new demand curve shift? 5. Make a guess, if your salary decreases, how does the new demand curve shift? Why?

Answer 1

Answers

1. The quantity demand for a goods or services depend on many factors, like , price of the commodity or good, price of other related commodities,consumer's money income,consumer's taste and preferences, consumer's future expectation of price of the commodity, time, etc.

a) Price of the good- For the normal goods, there is a negative relationship between the price of the good and the demand for the good.If the price of the good rises, the demand for the good declines, and vice versa.This is the reason why demand curve is negatively sloped.

Exception: for the Giffen goods, if the price of the good rises, then the demand for the good also rises. So in case of Giffen goods, there is a positive relationship between the price of the good and the demand for the good.

b) Price of other related commodities/goods- The demand for a good also depends on the price of other related goods. Let us take there are two goods, X and Y , and the prices are P_X and P_Y respectively. If for the decrease in P_Y , the demand for X decreases, then X and Y are called substitute goods. On the other hand, if  for the decrease in P_Y , the demand for X rises, then X and Y are called complementary goods. So for the substitute goods, the decrease in price of one of the goods will increase the demand for that good, and will decrease the demand for its substitute good. On the other hand, for the complementary goods, the decrease in price of one of the goods will increase the demand for that good, and will also increase the demand for its complementary good.

Example:

Substitute goods - Tea and Coffee

Complementary goods- Car and Petrol

c) Consumer's money income-  If consumer's money income rises, it will raise his/her purchasing power. As a result the demand for the goods rises. Also the decrease in consumer's money income, decreases his/her purchasing power , and as a result the demand for the good decreases. So increase in money income increases the demand for the good and decrease in money income decreases the demand for good.

d) Consumer's taste and preferences - Consumer's taste and preferences also determine consumer's demand for a commodity. If a consumer likes coffee over tea, he/she will purchase more coffee and less tea.

e) Consumer's future expectation of price of the commodity - If the consumer expects that the price of a commodity may rise in future,he/she will purchase more of the commodity now if it is durable commodity.So the present demand for the commodity will rise.

f) Time - Time is also an important factors of demand for a commodity. The demand for woolen garments rise in winter season.In summer, there is no demand for woolen clothes.Consumers demand rain-coat only in rainy season.

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2.

The price of ice-cream in dollar (P)	The quantity demanded of ice-cream (Q)
0.00	19
0.50	16
1.00	13
1.50	10
2.00	7
2.50	4
3.00	1

From the above table,after looking the first three rows of price and quantity demand, we see that there is a linear relationship among the price of the ice-cream and the quantity demand for ice-cream. If the price of the ice-cream increases by $0.50, the quantity demand for ice-cream decreases by 3.Following this relationship, filled the last four rows of the quantity demand column.

3 1.33 50

Equation of the demand curve

Q_d = a - b(p)

where, Q_d is quantity demand ,

a is the intercept on the price axis

b is the slope of the demand curve

As quantity demand and price are negatively related, so slope b is negative.

b= $\Delta$ Q/$\Delta$P

$\Delta$Q= 19-1=18

$\Delta$P= 3-0=3

b= 18/3 =6

so, Q_d = 3 - 6*(p)

To find a, let us take a particular price, quantity combination, 2, and 7 respectively.Putting the values in demand curve equation, we get,

7 = a - 6*(2)

or, - a= -12 -7=-19 , a=19

$\therefore$ Q_d = 19-6p

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4. If the salary increases , and the demand for ice-cream increases by one unit for each price, the demand curve will shift to the right of pld demand curve.

In the above diagram DD is the old demand curve and D₁D₁ is the new demand curve.The two demand curves are parallel to each other.The new demand curve and increased amount are shown by the green line.

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4. If the salary decreases, the demand curve will shift to the left of the old demand curve. The decrease in salary will decrease the consumer's purchasing power if the price doesn't decrease..Thus for each price , the consumer will now purchase less of ice-cream.

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