(BUS5POE): Problem Sets on Principles of Economics : La Trobe University

PRINCIPLES OF ECONOMICS _ BUS5POE
PROBLEM SET NO 4

Part A
1)
Figure 1
A decrease in the cost of creating computer chips reflects a decrease in the cost of making a computer.
As a result, the supply of computers shifts to the right, as shown in Figure 1. The equilibrium price
decreases as the equilibrium quantity increases.
Figure 2
Because typewriters are computer replacements, the increasing equilibrium number of computers (from
figure 1) decreases the demand for typewriters. As seen in Figure 2, the effect is a decrease in both the
equilibrium price and the number of typewriters.
2)

Figure 3
When the price of mobile phones grows, so does the number of phones sold. People now prefer to buy
fewer headphones since headphones and mobile phones are complements. Headphone demand moves
to the left. Both the equilibrium price and quantity fall when the demand curve shifts to the left. As a
result, supply remains constant, demand lowers, the quantity provided falls, the quantity demanded
falls, and the price reduces (the exact opposite of what happens in the following graph where demand
increases)
3)
The question's assertion is untrue. Electric vehicles serve as replacements for gasoline-powered vehicles.
As a result, rising the price of electric vehicles will increase demand for gasoline-powered vehicles. The
equilibrium price of gasoline-powered autos will rise as a result.
4)
The answer is d
The growth in income will result in an increase in demand for daily necessities. As a result, the demand
curve moves to the right, and prices and quantities rise.