This document discusses various concepts in economics such as the relationship between price and quantity demanded, individual and market demand curves, and the impact of income and substitute goods on demand. It also includes short run and long run supply curves and their implications.
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1 Running Head: ECONOMICS Economics
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Answer A. Table 1: Price and quantity demanded of Cheese Quantity of priceQuantity of cheeseEstimatedquantityof cheese $1.00800 gm.1 kg $1.20700 gm.900 gm. $1.40600 gm.800 gm. $1.60500 gm.700 gm. $1.80400 gm.600 gm. From the above table it can be observed that with the rise in the price level of cheese, the quantity purchased by the consumers would be decreased. As per the law of demand, price level of the product and the quantity demand is adversely related to each other. Now, if my income level will be increased by 50%, then my capacity of purchasing product will be also increased. Answer B. Quantity of priceQuantity of cheeseNumber of consumers $1.00800 gm.600 $1.20700 gm.550 $1.40600 gm.500 $1.60500 gm.450 $1.80400 gm.400 The economy of the kingdom of Saudi Arabia is highly developed and therefore, it can be said that the customers will be able to purchase the product even after raising the price level. Therefore, the decreasing of demand for the product is less after rising the price level. Hence, the individual demand curve is steeper than the market demand curve. However, if the aggregate income level would be increased by 50%, then the demand would not be increased much than the individual demand (since, the supply is constant).
Figure 1: Individual demand curve versus market demand curve (Source: Green, Bean & Peterson, 2013) DAand DBis individual demand curve, while DMis market demand curve. Answer C. Substitute good of cheese is butter and if the price level of substitute good will decrease by 50%, then the consumers will like to purchase it more over cheese. Answer D. Figure 2: Short run supply curve of cheese firm (Source:Naumenko & Moosavian, 2016)
Figure 3: Long run supply curve of firm (Source: Iossa & Martimort, 2015) In the short run, the marginal cost curve is lies above the average variable cost, however, in the long run, since, a number of firms enter into and also exit from the market, hence the long run marginal cost curve displaces. Figure 4: Short run supply curve of industry (Source: Iossa & Martimort, 2015) The short run supply curve of the industry is the lateral summation of short run MC curve of the firms. After destroying the goods in last night’s fire, the decrease of quantity demand is
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proportional to the decrease of price level. Consequently, demand of the products will be increased. Answer E. If the supply of Cheese is constant in short run, then the price level of the product will be increased with the rise of demand for maintaining the equilibrium in the market. In this context, the consumer behaviour will be changed and they will be inclined to purchase the substitute goods more.
References Green,G.P.,Bean,J.C.,&Peterson,D.J.(2013).Deeplearninginintermediate microeconomics: Using scaffolding assignments to teach theory and promote transfer.The Journal of Economic Education, 44(2), 142-157. Iossa, E., & Martimort, D. (2015). The simple microeconomics of public‐private partnerships. Journal of Public Economic Theory, 17(1), 4-48. Naumenko, A., & Moosavian, S. A. Z. N. (2016). Clarifying theoretical intricacies through the use of conceptual visualization: Case of production theory in advanced microeconomics. Applied Economics and Finance, 3(4), 103-122.