Answer to Question #52323 in Microeconomics for shannon

Question

QUESTION 1
Explain, with the use of demand and supply diagram(s), the difference between a change in quantity demanded of hats and a change in demand for hats. (4 Marks)
QUESTION 2
Explain, with the use of demand and supply diagrams, the effect of the following events on the market for solar panels:
• The price of solar panels has fallen to below the market equilibrium price.
• The price of electricity for an average household has increased by 50 percent.
• New technology has increased the productivity of solar panel producers.
(2 + 2 + 2 = 6 Marks)
QUESTION 3
Assume new medical research has proven that consuming oranges will prevent heart attacks, whilst at the same time; a typhoon destroys 60 percent of the orange crop. Explain, using demand and supply diagram(s), the impact on the equilibrium price and quantity in the market for oranges? (4 Marks)
QUESTION 4
If the price of a good increase from $6 to $9, leading to a fall in quantity demanded from 55 to 35 units, what is the price elasticity of demand for the good at this price range? Interpret the calculated elasticity value and explain the impact of the price rise on total revenue.
(6 Marks)

Answer 1

QUESTION 1
A change in quantity demanded of hats can incur only according to the change in price of hats, but a change in demand for hats can be caused by the other factors like change in supply, expectations, technology and other.
QUESTION 2
• If the price of solar panels has fallen below the market equilibrium price, then the quantity demanded of them will increase.
• If the price of electricity for an average household has increased by 50 percent, then the quantity demanded will decrease.
• If new technology has increased the productivity of solar panel producers, then the supply of solar panels will increase, equilibrium quantity will increase and price will decrease.
QUESTION 3
If new medical research has proven that consuming oranges will prevent heart attacks, whilst at the same time a typhoon destroys 60 percent of the orange crop, the demand for oranges will increase and the supply of them will decrease, which will cause the equilibrium price to rise significantly without significant change in quantity in the market for oranges.
QUESTION 4
If the price of a good increase from $6 to $9, leading to a fall in quantity demanded from 55 to 35 units, the price elasticity of demand for the good at this price range is
Ed = (6+9)/(55+35)*(35-55)/(9-6) = -20/18 = 1.11, so the demand is elastic. If the price rise, the total revenue will decrease.