Question

Economic

The Market: Laptops.

The Event: The price of copper, an input into making laptops, decreases. Simultaneously, the price of tablets (a substitute for laptops) decreases.

Given the above information, answer the following questions:

1. what do you expect to have happened to the supply of laptops?

Options: shift right (increase), shift left (increase), no shift, shift right (decrease), shift left (decrease).

2. If the supply curve for laptops shifted, what is the best reason for the shift?

Options: lower input costs, decrease in the price of substitutes, more sellers, the supply curve does not shift, but there could be a change in quantity supplied.

3. what do you expect to have happened to the demand for laptops?

Options: shift left (decrease), shift left (increases), shift right (decreases), shift right (increases), no shift.

4. If the demand curve shifts, what is the best reason why?

options: the lower price of a substitute good means fewer people demand laptops, the number of buyers decreases, change in tastes or preferences, the demand does not shift but there could be a change in quantity demanded.

5. What do you expect will happen to the equilibrium quantity (Qe)?

options: Qe cannot be determined, Qe remains the same, Qe increases, Qe decreases.

6. What do you expect will happen to the equilibrium price (Pe)?

Options: Pe decreases, Pe increases, Pe remains the same, Pe is unable to be determined.

Answer 1

Q) what do you expect to have happened to the supply of laptops?

answer- shift right ( increase)

Explanation- As the price of copper, an input into making laptops decreases, the cost of production decreases and hence the seller's profit margin at particular price increases. As such, the seller will supply more of laptops and the supply will increase causing the supply curve to shift to the right .

Option shift left( increase) is incorrect because when supply curve shifts to the left, it indicates decrease in the supply not increase in supply.

Option shift right( decrease) is incorrect because when supply curve shifts to the right, it indicates increase in the supply and not decrease .

Option shift left( decrease) is incorrect because as cost of production of laptops will reduce, supply of laptops will increase and not decrease.

Option not shift is Incorrect because as supply changes because of a change in factor( price of input) other than the own price of the commodity ( laptop), supply curve will shift .

Q) best reason for the shift of supply curve.

answer- option- lower input cost

Explanation- As copper is an input in making of laptops, a decrease in the price of copper i.e., a decrease in the cost of copper will lead to a decrease in the cost of producing laptops. As such cost of input is lowered and profit margin of the seller will increase and hence supply of laptops will increase.

Option decrease in the price of substitute is incorrect because it is not a determinant of supply but a determinant of demand.

Option more sellers is incorrect because here the cost of input ( copper ) is reduced.

Option supply curve will not shift is Incorrect because supply curve shifts when change in supply is caused by a factor ( low input price) other than the own price of the commodity .

Q) what do you expect to have happened to the demand for laptops?

Answer- option- shift left ( decrease)

Explanation- As the price of tablet, a substitute for laptops decreases, people will demand more of tablet and less of laptops as laptop is relatively costlier. As such, the demand for laptops will decrease and demand curve will shift to the left.

Option shift left( increase) is incorrect because when demand curve shifts to the left it indicates a decrease in the demand and not increase.

Option shift right( decrease) is incorrect because when demand curve shifts to the right it indicates increase in demand and not decrease.

Option shift right ( increase) is incorrect because as laptops are now relatively costlier, the demand for laptops will decrease and demand curve will shift to the left.

Option not shift is Incorrect because as change in demand is caused by a factor ( change in price of substitute good) other than the own price of the commodity( laptop), the demand curve will shift

Q) best reason for shift of demand curve-

Answer-option- lower price of substitute means fewer people demand for laptops

Explanation- Demand curve will shift to the left because as the price of tablet ( a substitute) will decrease, laptop will become relatively costlier and hence people will demand more of tablet and less of laptops

Option number of buyers decreases and change it taste and preferences are Incorrect because change in demand is caused by a change in the price of substitute.

Option demand does not shift is Incorrect because as change in demand is caused by a factor ( price of substitute) other than the own price of the commodity ( laptop), the Demand curve will shift .

Q) what do you expect to happen to the equilibrium quantity of laptops?

Answer- option- Qe cannot be determined

The equilibrium quantity will depend upon the relative change in demand and supply. As we do not know the magnitude of change in demand and change in supply, whether Qe will increase, decrease or remain the same cannot be determined

Options Qe remains the same, increases , decreases are Incorrect because Qe cannot be determined without knowing the magnitude of change in demand and change in supply.

Q) what do you expect will happen to the equilibrium price ( Pe)?

Answer- option- Pe decreases

As supply will increase, at the same original equilibrium price, the supply of laptops will more than demand and excess supply will emerge in the market for laptops. As such, this would exert a downward pressure on the price and the Equilibrium price will tend to fall.

As demand will fall, at the original equilibrium price, the demand for laptops will decrease and there would emerge excess supply in the market for laptops. This would exert a downward pressure on the price and the equilibrium price will tend to fall.

In both the event of supply and demand, excess supply would emerge causing the equilibrium price to fall. Hence, equilibrium price Pe will decrease.

Option increases is Incorrect because in case of excess supply, Pe falls and not increases

Option remains the same is Incorrect because excess supply causes a downward pressure on the price and price will fall.

Option cannot be determined is incorrect because when excess supply occurs, Pe falls.