Answer to Question #293005 in Microeconomics for Faty

Question

Q. 1. What is law of demand? Explain why there exists a negative relationship between the price of a product and its quantity demanded? Note: discuss the three reasons why the law holds. (Income, substitution effects and law of diminishing marginal utility)

Q. 2. Discuss the determinants of Demand in details with examples.

Q. 3. Popeye’s income declines, and as a result, he buys more spinach. Is spinach an inferior or a normal good? What happens to Popeye’s demand curve for spinach?

Q. 4. What are the supply schedule and the supply curve, and how are they related? Why does the supply curve slope upward?

Q. 5. Does a change in producers’ technology lead to a movement along the supply curve or a shift in the supply curve? Does a change in price lead to a movement along the supply curve or a shift in the supply curve?

Answer 1

Q1.The law of demand states that the higher the price, the lower the quantity demanded. Based on law of diminishing marginal utility, the regulation states that consumers use the first gadgets of an economic suitable to fulfill the most pressing wishes and then use extra unit of the appropriate for reduce valued needs. Income have an effect on is described as exchange in consumption of objects notably primarily based on income. Consumers will spend greater if they journey an make bigger in income and spend much less when earnings declines. Substitution effect takes neighborhood when customers substitute cheaper objects with ones that are more expensive.

Q2.(1).Price of the Product;

People use price as a parameter to make preferences if all special factors stay steady or equal. According to the regulation of demand, this implies an amplify in demand follows a discount in rate and a limit in demand follows an extend in the fee of similar goods. The demand curve and the demand time table help decide the demand extent at a cost level. An elastic demand implies a sturdy change extent accompanied via the use of a trade in price. Similarly, an inelastic demand implies that extent does now not change a lot even when there is a exchange in price.

(2).Income of the Consumers;

Rising incomes lead to a rise in the vary of items demanded through consumers. Similarly, a drop in profits is accompanied by way of decreased consumption levels .This relationship between income and demand is now not linear in nature .Marginal utility determines the share of trade in the demand levels.

(3).Prices of associated items or services

Complementary merchandise – An make higher in the rate of one product will cause a minimize in the extent demanded of a complementary product. Example: Rise in the cost of bread will minimize the demand for butter. This arises due to the fact the merchandise are complementary in nature. Substitute Product – An enlarge in the rate of one product will motive an extend in the demand for a substitute product. Example: Rise in cost of tea will extend the demand for espresso and restriction the demand for tea.

4.Consumer Expectations;

Expectations of a larger profits or observing for an expand in fees of goods will lead to an extend the extent demanded. Similarly, expectations of a decreased profits or a reducing in prices of items will limit the quantity demanded.

5).Number of Buyers in the Market;

The variety of buyers has a most vital influence on the entire or internet demand. As the large variety increases, the demand rises. Furthermore, this is genuine irrespective of changes in the price of commodities.

Q3.Because Popeye buys more spinach when his income declines, spinach is an inferior acceptable for him. His demand curve for spinach shifts out to the applicable as a end end result of the restriction in his income

Q4.A grant time table is a desk that shows the volume supplied at every price .A furnish curve is a diagram that suggests the extent furnished at every price. A furnish curve slopes upward exceptionally due to the fact of the income motive. When the market charge of a precise proper rises following an extend in demand, it becomes greater profitable for groups to reply by using potential of increasing their output.

Q5.A technological alternate would lead to a shift in furnish curve. Only when quantity furnished receives affected with the resource of a alternate in fee of that commodity, action would appear alongside the supply curve .And that is because with the resource of definition supply curve is a graphical illustration of extent provided at unique cost tiers of a commodity. As regards to alternate in furnish caused by way of issue specific than rate of the commodity, that would lead to a shift in furnish curve. Like the case that has been cited in the question. Technological change. Intuitively, I would remember on a higher technological expertise use with time. And this would imply prolong in production and for this purpose accelerated willingness to provide at each charge stage thru producers which would shift supply curve to the right. An inferior science on the different hand would shift the grant curve leftwards indicating producers are willing to supply less at each price.