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Market Equilibrium
Using the demand function, , and the supply function, , for coffee,
Determine the equilibrium price and quantity of coffee if Y=$55, ps=0.20, and pc=$5.
Draw the demand and supply curves and illustrate this equilibrium in a diagram.
1. Explain the difference between decrease in demand and decrease in quantity demanded, and using any product of your choice, briefly explain three factors that can cause decreases in demand for that product.
2. Explain the difference between a price ceiling and price floor. Use two popular examples with well-labelled diagrams to explain.
3. Assuming that the market for Frytol cooking oil is currently in equilibrium (Demand equal supply). Briefly explain with aid of well-labeled diagrams how the following events will affect the equilibrium price and quantity of Frytol (in each case, start from a new equilibrium).
a) Average incomes fall due to COVID-19.
b) It is discovered that Frytol oil is good for adults.
c) A tax of 1.75% is place on Frytol.
The hourly demand for music downloads is given by:
Qd = 25 – 5P,
where Qd is the number of songs demanded per hour, and P is the price of downloading a song.
Suppose that P = $3. At this price, what does the price elasticity of demand equal? What is the total revenue?
At what price does ε = 1? What is the total revenue when the price is $2.50?
Explain whether your results to part a and part b are consistent with the Total Revenue Test.
Adam loves UNAM shandy which he makes by combining one glass of oshikandela and two scoops of ice cream. Eve is on the diet that assigns points to food and drinks. One glass of oshikandela is one point and one scoop of ice cream is one point. She can consume any combination of oshikandela and ice cream as long as the total number of points is two. (a) What type of goods are oshikandela and ice cream for Adam? Show his indifference curve on a graph. (b)What kind of goods are Oshikandela and ice cream for Eve? Show her indiffernce curve on a graph.
4. The following relations describe monthly demand and supply for a computer support ser-
vice catering to small businesses.
Q D = 3,000 - 10P
Q S = -1,000 + 10P
where Q is the number of businesses that need services and P is the monthly fee, in dollars.
a. At what average monthly fee would demand equal zero?
b. At what average monthly fee would supply equal zero?
c. Plot the supply and demand curves.
d. What is the equilibrium price/output level?
e. Suppose demand increases and leads to a new demand curve:
Q D = 3,500 - 10P
What is the effect on supply? What are the new equilibrium P and Q?
f. Suppose new suppliers enter the market due to the increase in demand so the new supply
curve is Q = –500 + 10 P. What are the new equilibrium price and equilibrium quantity?
g. Show these changes on the graph.
11. Following are three sample equations. Plot them on a graph in which Q is on the vertical
axis and P is on the horizontal axis. Then transform these equations so P is expressed in
terms of Q and plot these transformed equations on a graph in which P is on the vertical
axis and Q is on the horizontal axis.
a. Q = 250 - 10P
b. Q = 1,300 - 140P
c. Q = 45 - 0.5P
Draw on a graph and explain in words the excess capacity and markup in monopolistic competition versus perfect competition. Show the deadweight loss and mark on the graph.
Diana consumes potatoes and other goods (potatoes is an inferior good). Using an indifference curve analysis show the effects that determine Diana s final consumption of these two goods. (Hint price for potatoes increase).
The consumer is not choosing the best affordable (feasible) bundle of goods x and y. Explain why? MUy /Px MUy /Py
the utility function for a consumer utility is U=30Q1 1/2 Q2 1/2. if the price per unit of Q1 =shs 10 and shs 5 per unit of Q2 determine the quantities the consumer should maximize utility if the consumer budgeted shs 350
