Question 1 ( (a) Consider the market represented by the schedule in the table below.
i) Draw a diagram. What is the equilibrium price and quantity?
ii) How many units will be purchased at the price of $50? How many units will be offered on the market by sellers? Explain whether there will be a surplus or shortage of units on the market. Is there a pressure on price to rise or fall?
iii) If the price rises due to government regulation from $30 to $40, how much will producers be able to produce and sell? Explain whether there will be a surplus or shortage of units on the market. What happens in the market if the regulation is abolished?
iv) If the price falls due to government regulation from $30 to $20, how much will producers will be able to produce and sell? Explain whether there will be a surplus or shortage of units on the market. What happens in the market if the regulation is abolished?
v) Suppose the consumers' income increased by 20%. Draw a diagram and explain the effect of the income change on market.
(b) Suppose demand (QD) and supply (QS) in a market can be expressed by these equations:
QD= 200-0.5*P QS= 100+2*P
(i) Complete the table. What is the equilibrium price and quantity? If the prevailing market price is $60, what are the quantity demanded and the quantity supplied?
(ii) Draw a diagram and calculate the change in the equilibrium if supply changes to QS= 75+2*P. Identify the key types of reasons why supply can increase in a market.
(c) Utilise the demand-supply market models (for each market below) to graphically illustrate and explain the following scenarios (in the short run). Identify for each scenario what the effects on price and quantity are likely to be. State your assumptions.
i) The market for new models of flat screen televisions if there is a large increase in the number of TV commercials promoting new models of televisions.
ii) The market for laptops if there was an increase in efficiency in the laptop production line.
iii) The market for tea if the price of coffee increases.
iv) The market for public transport as the price of parking for small cars decreases.