Assignment on Economics Law of Demand and Supply

Added on - 03 May 2020

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Running head: ECONOMICS ASSIGNMENTEconomics AssignmentName of the Student:Name of the University:Author note:
1ECONOMICS ASSIGNMENTSDPriceQuantityQ1P1P2Q2’Q2Q1’ABCFPart AAnswer 1Figure1: Law of demand and supply(Source: Author)The laws of demand and supply are the most fundamental principles of economics. Thelaw of demand says that if the price of a product or service rises, its quantity demanded falls,other things remaining the same. On the contrary, the law of supply says that the quantitysupplied of a product or service rises if its price rises and falls if its price falls, when other thingsremain unchanged(Baumol & Blinder, 2015). Other things refer to the income of the consumers,tastes and preferences, technological advancement etc. From the above diagram, it can be seen
2ECONOMICS ASSIGNMENTSDPQSDQPS2P2Q2Before Technological AdvanceAfter Technological AdvanceP3Q3P1Q1E3that at price P1, the quantity demanded was Q1 and quantity supplied was Q1’. When the pricefell to P2, the quantity demanded increased to Q2, from point B to F, and quantity supplied fellto Q2’, from point C to A. This happens due to law of demand and supply.Answer 2Figure2: Shifts in market demand and supply due to technological advancement(Source: Author)
3ECONOMICS ASSIGNMENTBefore technological advance hit the market, the equilibrium price and quantity of ipad was P1and Q1. After the advent of technological advances, the market supply changes. Technologicaladvancement is a supply side factor determining extent of supply. Using more sound technologyproducers are able to produce at much lower cost(Rios, McConnell & Brue, 2013).. This allowsthem to increase production as well a supply in the market. As a result supply curve shiftsrightward to S2. This makes he price fall to P2 and equilibrium quantity to rise to Q2 The shift insupply in presence of stable demand creates excess supply and pushes market price down. Thelower price and technologically improvised product enhances demand for ipad and that shifts thedemand outward. This leads to new market equilibrium E3 and the market price to become P3with quantity even increased than before to Q3. P3 is higher than P2. The reason behind the risen price is due to increasing demand depleting the prevailing excess supply in the market.Answer 3Market failure refers to the situation of inefficient allocation of resources. A mostcommon example of market failure is the case of public goods consumption(Bleda & Del Rio,2013). The government produces public goods, such as, roads, national defense, for all thecitizens and in exchange collects tax. However, some people do not pay taxes and thegovernment cannot limit the consumption to the tax paying customers only, as these goodscannot be produced for private consumption. The government cannot even put competitive priceson this type of goods(Baldwin & Scott, 2013).
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