A2

Assignment 2

Chapter 3
Name: Rahul Rapaka

Note: An electronically generated graph using Excel is required for sections on graphing.
Questions or activities that need to be completed are in bold.

(1)   A 'market' is an institution that brings buyers and sellers together. Examples of a mar-
ket would include the market for cars, market for refrigerators, the stock market, market
for kids’ clothes, etc. In a market, the forces of 'demand' and 'supply' are at work.

(2) Given is a demand schedule of a hypothetical buyer in a hypothetical market:

Price (P) Quantity Demanded (Qd)

$1 500 units

$2 400 units

$3 300 units

$4 200 units

$5 100 units

(3) Based on the given demand schedule, state the law of demand.

The demand decreases when price increases

(4) Draw the demand curve. Let P be on the vertical axis and Qd on the horizon-
tal axis. Use Excel to construct your graph.

(5) How would you describe the resulting demand curve?

The relationship between the cost of a good and the quantity that customers are ready
and able to buy can be seen by the demand curve. It frequently slopes downward, in-
dicating that demand decreases as costs increase.

(6) What does change in demand (ΔD) mean?

An increase or decrease in consumer preference to buy a specific good or service,

whatever a change in price is known as a change in demand. Changes in buyer habits,
income levels, or the price paid for the same item could all be the cause of change.

(7) If you were to use a graph, how would you show an increase in demand? Re-
fer to figure 3.3 on page 57. A thorough description is acceptable.

On a graph, an increase in demand results in an upward trend in the supply curve thus
the curve also shifts to the right.
 (8) If you were to use a graph, how would you show a decrease in demand? Refer
to figure 3.3 on page 57. A thorough description is acceptable.

The supply and demand the curves would shift to the left if customers become less
motivated and capable to pay for as numerous items at a particular price level.

NOTE: The determinants of demand are discussed on pages 57-58. Those are fac-
tors or events that can lead to a ΔD. Read those carefully and be able to analyse how
each determinant can lead to an increase in D or a decrease in D.

(9) Answer question #3 found on page 73.

a. Increase in D
b. Decrease in D
c. Increase in D
d. Decrease in D
e. Decrease in D

(10) What is a movement along the demand curve? This phenomenon is also
known as change in quantity demanded (ΔQd). What is the one and only one
reason that would result in a movement along the demand curve? (See page 59)

The only thing that might possibly shift the position of the demand curve is a shift in
the price of the commodity that is in high demand.

(11) Fill in the blank: A movement along the demand can either be an increase in
Qd or a decrease in Qd. An increase in Qd is due to Decrease in price while a de-
crease in Qd is due to Increase in Price .

(12) True or False: A change in the selling price of the good will cause a 'change
in demand.'

True

(13) Given is a hypothetical supply schedule of a seller in a hypothetical market:

Price (P) Quantity Supplied (Qs)

 $1 100 units
$2 200 units
$3 300 units
$4 400 units
$5 500 units

(14) Based on the table, state the law of supply.

According to the law of supply, there is a beneficial relationship between price and quan-
tity supplied, indicating that higher prices motivate producers to create more of an item as
lower prices lead producers to produce less of it.

(15) Draw the supply curve. Let P be on the vertical axis and Qs on the horizontal
axis. Use Excel to construct your graph.

(16) How would you describe the resulting supply curve?

As the price increases, also the units being supplied are increased

(17) What does change in supply (ΔS) mean?

Refers to a shift in the entire supply curve in response to factors other than price
(18) If you were to use a graph, how would you show an increase in supply? Refer
to figure 3.5 on page 61. A thorough description is acceptable.

The distribution of supplies would turn to the right in reaction to a increase in supply.

(19) If you were to use a graph, how would you show a decrease in supply? Refer to
figure 3.5 on page 61. A thorough description is acceptable.

When there is a decrease in supply, it leads to a leftward shift of the supply curve. This
means that at any given price, the quantity supplied is lower compared to the previous
supply curve. The shift indicates that suppliers are offering less of the product or service
than before, resulting in a reduced quantity available in the market. The leftward shift of
the supply curve signifies that at each price level, suppliers are now willing to offer fewer
units of the product or service.

NOTE: Listed on pages 63-63 are the determinants of supply. These are factors or
events that can lead to a ΔS. Read those carefully and be able to analyse how each deter-
minant can lead to an increase in S or a decrease in S.

(20) Answer question #6 found on page 71.

a. Increase in S
b. Decrease in S
c. Decrease in S
d. Increase in S
e. No change in S
f. Decrease in S
g. Increase in S

(21) What is a movement along the supply curve? This phenomenon is also known
as change in quantity supplied (ΔQs). What is the one and only one reason that
would result in a movement along the supply curve? (See page 63)

The only occasion when there is change across the supply-demand curve occurs when the
selling price of the product that people desire varies.

(22) A movement along the supply curve can either be an increase in Qs or a de-
crease in Qs. An increase in Qs is due to Price decrease while a decrease in Qs is due
to Price Increase.

(23) True or False: A change in the selling price of the good will cause a 'change in
supply.'

True
(24) We now combine the hypothetical demand and supply schedules given above.

Price Qd Qs
$1 500 100
$2 400 200
$3 300 300
$4 200 400
$5 100 500

(25) Construct the demand and supply curves on one graph. Let P be on the vertical
axis and Q (quantity) be on the horizontal axis. Your resulting graph would look
similar to figure 3-6, page 64 text. Your demand and supply curves will end up as
straight lines because the data you are using are based on linear equations. Use Ex-
cel to construct your graph. Copy and paste your graph.
(26) How much is the equilibrium price (Pe)?

(27) What is the value of the equilibrium quantity (Qe)?

300

(28) Referring to the hypothetical chart given on #24 above and assume the selling
price in the market is $5. Obviously, the market is no longer in equilibrium. What
is the problem called? Is it a surplus or is it a shortage? Explain your choice. In ad-
dition, solve for the surplus or shortage units as the case may be. Show your calcula-
tion.

The rise in production higher than the demand leads to an excess in the supply; 100 units
were needed, but only 300 were delivered.
(29) Referring to the hypothetical chart given on #24 above and assume the selling
price in the market is $2. Obviously, the market is no longer in equilibrium. What
is the problem called? Is it a surplus or is it a shortage? Explain your choice. In ad-
dition, solve for the surplus or shortage units as the case may be. Show your calcula-
tion.

200 units extra will be needed than might have been supplied, producing a shortage. 400
units are demanded and supplied

*****End of A2****