Question

a) Distinguish between a change in quantity supplied and a change in supply. Include diagrams and a written explanation in your answer...( 4 marks )

(b) In the current Covid-19 real estate market, people have different ideas on where the market is going. Homebuyers expect the price of new homes to fall over the next year. Homesellers expect the price of new home to rise.

Question:

Explain how the market for new homes will be affected. You can use a diagram to help.

(c) The demand schedules for Mary, Maggie and Mark, three consumers of Tim Horton's coffee are below...

Price (P)........................Mark.........................Maggie..............................Perlita

$/coffee Coffees/month Coffees/month Coffees/month

$2.00..............................0...................................3..........................................2

1.80...............................1...................................5..........................................4

1.60...............................3...................................8..........................................7

1.40...............................5..................................11........................................12

1.20...............................7..................................15........................................13

1.00...............................9...................................18.......................................15

Question:

Assuming these three individuals above make up the market for Tim Horton's coffee, draw the market demand curve for this product

Answer 1

a) Change in supply is when the whole supply curve shifts. This is due to changes in factors other than price like the price of inputs, technology etc.

The supply curve has shifted from S to S'.

The change in quantity supplied is the change which occurs along the supply curve . This is due to the change in price of the good.

b) If the price is expected to fall in future as per homebuyers, they would demand less of the good now and more in future ie they would want to buy the house in future. This would reduce the current demand and shift the demand curve to left.

Similarly if the homesellers think that the price would rise in future, they would want to sell less units of house today and more in future. So the supply curve shifts to left.

This would have different impact on the price of the houses, depending on the proportionate change of demand and supply. But in all cases, the equilibrium quantity would reduce.

This is the case where the change in demand and supply is proportional and hence the quantity has reduced but the price is constant.

c) The aggregate demand would be the summation of the quantity demanded by three of them at different prices. The aggregate demand schedule is given below

Price	Aggregate demand
$2	5
$1.80	10
1.60	18
1.40	28
1.20	35
1.00	42

The graph below is plotted based on this table

The graph above is the horizontal summation of individual demand curves.

(you can comment for doubts)