ECO 1ST 18/2/2021
ASSIGNMENT USIU-
A
JOANNA VERONIQUE NDUWIMANA- 663066
1. A.
This collection of conditions is not contradictory to the law of demand. This is because there
are several situations in which the observed price changes and revenue rises will be
compatible with the rule of demand. The law of demand states that, if anything else is equal, a
rise in price will lead to a reduction in the quantity demanded. The scenario presented here
may seem to contradict this, but it only seems this way if we overlook that the rule of demand
states, "All other things are equal." There are many things that should have improved to
encourage consumers to buy more of this product, even though the price has risen.
B.
a) Demand would rise and there would be more gasoline customers. The new buyers will have
come from the additional cars and trucks.
b) Demand would decline because the profits of customers and firms would fall. Consumers
and companies will have less money to waste on gasoline.
c) Demand will decline due to a rise in the price of added commodities. Auto premiums,
vehicle taxes and car servicing are complementary to gasoline.
d) Current demand for gasoline would increase because expectations about the future have
changed and may prompt consumers to “buy now” to the future increased prices.
2. A.
a) The supply of corn will increase because of an improvement in the technology of corn
production. More bushels of corn will be produced at each and every price.
b) The economy moves into crisis – In a dynamic environment, demand for fuel will fall in
the event of a recession. Due mainly to the crisis, earnings reductions are expected to occur.
People on the competitive economy will not be able to expend as much money as usual on
gasoline.
c) Increase in the price of auto insurance, taxes, maintenance—The demand for gasoline
would possibly decline in a dynamic economy if there were increases in the cost of different
supplementary products. The products referred to above all apply to and supplement gasoline.
d) Consumer perceptions of significant price rise for gasoline – demand for gasoline is
expected to rise. Expectations for prices in the future will motivate customers to purchase fuel
now in order to save money later.
B.
a) The wearing of blue jeans is becoming less trendy among customers. As a result, demand
will fall, the price of balance and quantity will also fall, and supply will fall to the nearest.
b) Computer parts are decreasing in price due to technological changes. The balancing price
for computers is going to fall, the amount is going to increase, both demand and supply are
going to fall.
c) El Nino causes strong rainfall that kills a large portion of the lettuce crop. The supply will
fall, the price of balance will increase, the amount will fall, so the demand will also fall.
3.
a) The extreme winter triggers a non-price rise in demand, such that the function shifts to the
right. When the cost of producing heat oil increases, which induces a non-price drop in
supply, the curve shifts to the left. Thus, the current balance can be left and right to the
original point of equilibrium, and its position depends on elasticity.
b) demand for organic food will rise (non-price determinant) so that the demand curve will
change to the right because of people's interests. But because farmers turn, the availability of
organic food will rise (non-price determinant) such that the curve swings to the right as well.
Thus, the current price and quantity of balance would be greater than the original price.
c) the decrease in the cost of digital cameras will cause the market for film cameras to fall as
well, but since there are less shops, the availability of film cameras will also decrease. So, the
current equilibrium price and quantity would be less than the original price.
d) demand will decline as people choose to consume less bread but the drop in flour prices
will lead to a rise in the production of bread and a new balance relies on elasticity such that
we cannot tell whether the equilibrium point will be on the right or on the left at the starting
point.
4. A.
A price ceiling is the regulated maximum cost a vendor is authorized to charge for a good or
service. Usually laid down by law, price ceilings are usually applied only to staples such as
food and energy products when such goods become unaffordable to regular consumers. Some
places have rent ceilings to shield residents from exponentially increasing residence prices.
Price ceilings produce two unintended consequences: a reduced supply of products and a
higher price for buyers who turn to the black market.
B.
In order for the price ceiling to be efficient, it must be placed below the price of balance.
From the results, the price of balance is $7 and the quantity of balance needed and supplied on
the market is $4,500.
If the price limit is set at $6, there would be a deficit on the market when the amount ordered
is higher than the quantity supplied on the market. There would be a deficit of 5,000-3,500 =
1,500.
If the price limit is fixed at $5, there would be a deficit of $5,500-2,500 = 3,000.
If the price limit is fixed at $4, there would be a shortfall of 5,000-1,500 = 3,500.
5. A.
Price floors prevent a price from falling below a certain level. When a price floor is set above
the equilibrium price, quantity supplied will exceed quantity demanded, and excess supply or
surpluses will result. Price floors also have effects: Set above the market price, the amount
demanded is less than the market quantity. ->Consumers value the good (as shown by
willingness to pay) higher than the expense of its manufacture for output levels below the
demand quantity of balance.
B.
From the information, the equilibrium price is $7 and the equilibrium quantity demanded and
supplied in the market is 4,500.
For a price floor to be effective, it must be set above the equilibrium price.
At a price floor of $8, the quantity supplied will be greater than the quantity demanded. A
surplus of 5,500 - 4,000 = 1,500 will be created.
At a price floor of $9, a surplus of 6,000 - 3,500 = 3,000 will be created.
At a price floor of $10, a surplus of 7,500 - 3,000 = 4,000 will be created.
