Question

1. An increase in wages of oil rig workers has increased the cost of producing oil. How is the supply curve affected by this newly incurred cost? Represent graphically plot against the demand curve, label all points, and explain.

2. How does a $20 dollar subsidy effect the supply curve of Oil per barrel? Represent graphically, plot against the demand curve and explain.

3. Identify the type of good. Explain how the changes will affect demand. Pepsi price declines what happens to the demand for Coca Cola?

4. Illustrate and explain how changes in price effects substitute goods. The price of margarine declines what happens to the demand for butter?

5. A free market has a demand curve where the demand curve Qd= 600-30p and the supply curve Qs= - 360 +60p

A. Calculate PD, QD, PE, QE, PS

B. Graph against Q, P axis. (Label all points)

C. Calculate CS, PS, TS

D. Illustrate and explain what occurs to this market when the number of sellers is increased.

E. Explain what happens to PE, QE and demand.

6. Illustrate and explain how changes in price effects substitute goods. The price of margarine declines what happens to the demand for butter?   
7. A. List the determinants of Demand. B. List the determinants of Supply.

8. A free market has a demand curve where the demand curve Qd= 984-3p and the supply curve Qs= - 798 +14p

A. Calculate PD, QD, PE, QE, PS

B. Graph against Q, P axis. (Label all points)

C. Calculate CS, PS, TS

D. Illustrate and explain what occurs to this market when technology is upgraded.

E. Explain what happens to PE, QE and demand.

9. I would like to know the answer number 5,6,7,8

Answer 1

5.a) Q_d = 600-30P and Q_s = -360+60P

When Q_d = 0, P= 20 and when P = 0, Q_d = 600. Thus, demand curve has a vertical and horizontal intercept of 20 and 600 respectively.

Again, when Q_s = 0, P= 6 and when P = 20, Q_s = 840. Thus, supply curve passes through (0,6) and (840,20).

For equilibrium, Q_d = Q_s

or, 600-30P = -360+60P

or, 90P = 960

or, P=$10.67

and Q = 600-(30*10.67) = 280 units.

b) In the above diagram, we have graphed the given curves.

c) Consumer surplus CS = 1/2*base*height = 1/2*280*(20-10.67) = $1,306.2

Producer surplus PS = 1/2*base*height = 1/2*280*(10.67-6) = $653.8

Then, total surplus = CS+PS = $1,960

d) If number of sellers increases, supply increases. As a result, supply curve shifts to the right.

e) Now, as the demand curve remains unchanged, equilibrium price Pe falls whereas, equilibrium quantity Qe rises.

6) If price of margarine declines, demand for margarine rises. Now, demand for butter falls as butter and margarine are substitutes.

Thus, if price of a good falls, then, demand for a substitute good also falls. Similarly, if price of a good rises, then, demand for a substitute good also rises.

7) a. The determinants of demand are :

Price of the good, price of related goods, taste and preferences of the consumer, income of the consumer, future expectations of consumers, advertisements etc.

b. The determinants of supply are :

Cost of production, number of sellers, innovation in technology, increase in resources, taxes and subsidies etc.

8.a) Q_d = 984-3P and Q_s = -798+14P

When Q_d = 0, P= 328 and when P = 0, Q_d = 984. Thus, demand curve has a vertical and horizontal intercept of 328 and 984 respectively.

Again, when Q_s = 0, P= 57 and when P = 200, Q_s = 2002. Thus, supply curve passes through (0,57) and (2002,200).

For equilibrium, Q_d = Q_s

or, 984-3P = -798+14P

or, 17P = 1782

or, P=$104.8

and Q = 984-(3*104.8) = 670 units.

b) In the above diagram, we have graphed the given curves.

c) Consumer surplus CS = 1/2*base*height = 1/2*670*(328-104.8) = $74,772

Producer surplus PS = 1/2*base*height = 1/2*670*(104.8-57) = $16,013

Then, total surplus = CS+PS = $90,785

d) If technology is upgraded, supply increases. As a result, supply curve shifts to the right.

e) Now, as the demand curve remains unchanged, equilibrium price Pe falls whereas, equilibrium quantity Qe rises.