Principles of Economics Assignment Sample
Use your own words to answer the following:
1. Suppose that a consumer spends a fixed amount of income per month on the following pairs of goods:
a. Tortilla chips and salsa
b. Tortilla chips and potato chips
c. Movie tickets and gourmet coffee
d. Travel by bus and travel by subway
If the price of one of the goods increases, explain the effect on the quantity demanded of each of the goods. In each pair, which are likely to be complements and which are likely to be substitutes?
2. Consider the market for station wagons. For each of the events listed below, identify which of the determinants of demand or supply are affected. Also indicate whether demand or supply is increased or decreased.
a. People decide to have more children.
b. The price of mini-vans rises.
c. A strike by steelworkers raises steel prices.
d. Engineers develop new automated machinery for the production of station wagons.
e. A stock market crash lowers people's wealth.
f. IMPORTANT: Now assume the changes in parts a. and c. happen simultaneously. Show them on the diagram and explain what will/may happen to the equilibrium price and quantity.
3. How does an increase in consumer income affect the equilibrium price and quantity in the market for BMW vehicles? Show the impact of this increase in income on demand and supply diagrams.
4. Explain in words and show on a diagram what happens to the equilibrium price and quantity in the market for smartphones when there is an improvement in technology that reduces production time.
Solution
Question 1
a. Tortilla Chips and Salsa: These are ordinarily viewed as complements, as they are frequently consumed together. If the cost of one (e.g., salsa) increases, the amount requested for the two items is probably going to decrease as they complement one another (Moon 2018).
b. Tortilla Chips and Potato Chips: These are likely substitutes, as they can replace each other as snack items. If the cost of one (e.g., tortilla chips) increases, the amount requested for potato chips might increase, as customers change to the less expensive other option, while the amount requested for tortilla chips decreases.
c. Movie Tickets and Gourmet Coffee: These goods are less directly related, however they may be viewed as complements in a setting where individuals frequently appreciate coffee after a film. If the cost of one (e.g., film tickets) increases, the amount requested for both may decline (Moon 2018). However, they could likewise be viewed as unrelated, with negligible impact on one another's demand.
d. Travel by Bus and Travel by Subway: These are substitutes as they fill a similar transportation need. In the event that the cost of one (e.g., transport travel) increases, individuals might change to the next mode (metro), increasing the amount requested for the tram and decreasing it for the bus.
In summary, in pairs where the goods are complements (a and perhaps c), an expansion in the cost of one will ordinarily diminish the quantity requested for both . In pairs where the products are substitutes (b and d), an expansion in the cost of one will ordinarily decline its interest and increment the demand for the other.
Question 2
a. People decide to have more children:
• Determinant: Tastes or Preferences.
• Effect: Demand for station wagons will increase because the families that have more children will prefer those vehicle owing to space (Grigsby 2016)
b. The price of mini-vans rises:
• Determinant: Prices of Related Goods (substitutes).
• Effect: Demand for station wagons will increase as they are a substitute for mini-vans
c. A strike by steelworkers raises steel prices:
• Determinant: Input Prices.
• Effect: Supply of station wagons will decrease because the production cost increases with the increment in the higher steel prices (Grigsby 2016)
d. Engineers develop new automated machinery for the production of station wagons:
• Determinant: Technology.
• Effect: Supply of station wagons will increase, because the production becomes more effective and efficient.
e. A stock market crash lowers people's wealth:
• Determinant: Income.
• Effect: Demand for station wagons might decline because the crash in the stock market leads to erosion of wealth of the people and hence spending power will be lower in their hands (Grigsby 2016)
f. Changes in parts a. and c. happening simultaneously:
o Effect on Demand: Increase (due to more children).
o Effect on Supply: Decrease (due to higher steel prices).
o Equilibrium Price: Likely to increase because the increment in demand and the decline in supply will put upward pressure on the price
o Equilibrium Quantity: The change in the equilibrium quantity is uncertain without understanding the exact shifts in demand as well as supply curve. It might increase, decrease or remain the same depending on the extent of the shift in demand and supply (Cooke 2014)
The diagram illustrating these changes would show a rightward shift in the demand curve (from part a) and a leftward shift in the supply curve (from part c), leading to a new equilibrium at a higher price and an uncertain change in quantity.
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Question 3
An increase in customer income can essentially affect the equilibrium price and quantity in the BMW vehicles market , a product regularly viewed as a normal good. The analysis is as follows
1. Demand Shift: At the point when customer pay increases, individuals have more disposable cashflow, and they are bound to buy luxury or better quality items. On account of BMW vehicles, as an normal good, the demand would increase with higher incomes. This will move the demand curve to the right (Webster 2014)
2. Supply Curve: The supply curve for BMW vehicles is probably not going to change quickly with an increment in buyer pay. Manufacturers could respond after some time, however in the short run, the supply curve stays static for university assignment help.
3.Equilibrium Price and Quantity: With the demand curve moving to one side and the supply curve staying unaltered, the new balance will be found at a more higher cost and a higher quantity (Davis 2014). The increment in demand because of higher buyer earnings prompts a higher readiness to pay for BMW vehicles. Since the supply does not change at once this higher demand leads to more equilibrium price. The amount of BMW vehicles sold additionally increases, relating to the new demand level.
4. Graphical Representation: In the demand and supply diagrams, the expansion in consumer income would be addressed by a rightward shift of the demand curve. The supply curve continues as before. The convergence of the demand and supply bends moves to a higher price and higher quantity, addressing the new equilibrium.
In totality, an increment in consumer income prompts an increment in the demand for BMW vehicles, bringing about a higher equilibrium price and quantity . This evaluation highlights the connection among income and the demand for ordinary goods, showing the way that economic success can impact the market elements for luxury items like BMW vehicles.
Question 4
An improvement in innovation that reduces production time can straightforwardly impact the harmony cost and quantity in the cell phones market. Here is a detailed explanation
1. Supply Shift: An technological advancement that reduces creation time reduces the expense of delivering cell phones. Manufacturers can create more phones in a similar measure of time, prompting an increment in supply (Grigsby 2016). Hence, the inventory bend will move to one side.
2. Demand curve: In this particular situation, the interest for cell phones stays unaltered. In this manner, the supply curve doesn't shift.
3. Equilibrium Price and Quantity: With an increment in supply and unchanged interest, the new equilibrium will be found at a lower price and a higher quantity.
The excess supply due to further improved creation proficiency drives down the price (Cooke 2014). More cell phones are accessible at lower costs, hence leading to a higher quantity sold.
4. Graphical Representation: In a supply and demand diagram, the improvement in technology is addressed by a rightward shift of the stock bend. The demand curve continues as before. The intersection point of the new supply curve with the new equilibrium, projected by a lower price and higher quantity.
In synopsis, a technological advancement that lessens production time in the cell phone industry leads to an expansion in supply. This, thus, lowers the equilibrium cost and builds the equilibrium quantity. Consumers benefit from more reasonable cell phones, while manufacturers might possibly sell more units. This situation illustrates how technological development can prompt more efficient creation and benefit the two buyers and makers in a market, linking up with economic standards of organic market.
References
Cooke, J. A. (2014). Protean supply chains : Ten dynamics of supply and demand alignment. John Wiley & Sons, Incorporated.
Davis, R. A. (2016). Demand-driven inventory optimization and replenishment : Creating a more efficient supply chain. John Wiley & Sons, Incorporated.
Grigsby, M. (2016). Chapter 06: Price elasticity and discounts. London: Kogan Page Ltd. Retrieved from https://www.proquest.com/books/chapter-06-price-elasticity-discounts/docview/2460105937/se-2
Moon, M. A. (2018). Demand and supply integration : The key to world-class demand forecasting, second edition. Walter de Gruyter GmbH.
Moon, M. A. (2018). Demand and supply integration : The key to world-class demand forecasting, second edition. Walter de Gruyter GmbH.
Webster, T. J. (2014). Managerial economics : Tools for analyzing business strategy. Lexington Books/Fortress Academic.
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