Economic Principles | Assignment-1

Running head: ECONOMIC PRINCIPLES
Economic Principles
Name of the Student
Name of the University
Course ID

ECONOMIC PRINCIPLES1
Table of Contents
Question 1........................................................................................................................................2
Question 2........................................................................................................................................4
Question 3........................................................................................................................................5
Question 4........................................................................................................................................7
Question 5........................................................................................................................................8
References......................................................................................................................................11

ECONOMIC PRINCIPLES2
Question 1
a)
Figure 1: Effect of a surge in pear prices
A surge in pears’ price encourages people to purchase less pears and more apples since
apple is considered as a substitute of pear. As demand for apple increases, corresponding apples’
demand curve shifts rightward. Boost in demand with the given the supply creates a supply
shortage in the market. In order to eliminate the shortage price has be increased. Price adjusts
unless new equilibrium is attained. There is an increase in price and quantity of apples
corresponding to new equilibrium.

ECONOMIC PRINCIPLES3
b)
Figure 2: Impact of new machines adoption
When firms adapt new machines, it contributes to an increase in apples’ supply through
increasing productivity. This moves the apple supply curve to the right. Given the demand an
increase in supply leads to a surplus in the market. For the excess supply to be sold price has be
to fall. Consequently, price of apple starts to fall. This continues unless new equilibrium is
attained balancing existing demand and new supply. The equilibrium moves from E to E1 leading
to an upsurge in equilibrium quantity and a decline in equilibrium price of apples.
c)
Figure 3: Effect of a fall in income