ECONOMICS Economics Name of the Student Name of the University Course ID

Running head: ECONOMICS
Economics
Name of the Student
Name of the University
Course ID

1ECONOMICS
Table of Contents
Answer 1....................................................................................................................................2
Answer a.................................................................................................................................2
Answer b................................................................................................................................3
Answer c.................................................................................................................................4
Answer 2....................................................................................................................................5
Answer 3....................................................................................................................................6
Answer 4....................................................................................................................................8
Answer a.................................................................................................................................8
Answer b................................................................................................................................9
Answer 5....................................................................................................................................9
Reference list............................................................................................................................12

2ECONOMICS
Answer 1
Answer a
Price of related goods is a significant determinant of demand. For substitute goods,
change in price of one good has a positive effect on demand of the related good. With
increase in price of one good, demand for the substitute good increases and vice-versa. Now,
given that leather jackets are substitutes of woollen jumpers, a decrease in price of leather
jacket decreases the demand for woollen jumpers (Cowell 2018). This is because, with a
decrease in price of leather jacket, the relative price of woollen jumpers increase, which
reduces its demand. The equilibrium adjustment in the market of woollen jumper is described
below.
Figure 1: Impact of a price decrease of leather jacket
(As created by Author)
In figure 1, the initial demand and supply condition in woollen jumper market are
portrait by the respective demand and supply curve of DD and SS. Now, following a decline
in price of leather jackets, demand for leather jacket increases (Friedman 2017). As people

3ECONOMICS
purchase more leather jackets, demand for woollen jumpers fall. Consequently, demand curve
for woollen jumpers shifts inward to D1D1. Lower demand reduces equilibrium price of
woollen jumpers to P1. The equilibrium quantity falls to Q1.
Answer b
The adaption of new machines, which has increased the productivity of knitting
industry increase supply of woollen jumpers in the industry. At each price, there is now a
larger quantity of woollen jumper available in the market. The increase in supply of woollen
jumpers increases equilibrium quantity and reduces equilibrium price (Stoneman, Bartoloni
and Baussola 2018). The process of equilibrium adjustment in the market is explained with
the help of following figure.
Figure 2: Impact of new productive technology in knitting industry
(As created by Author)
The resulted increase in supply following adaption of new technology increase supply
of woollen jumpers. The supply curve shifts outward. The new supply curve is obtained as
S1S1. New equilibrium in the market occurs where new supply curve and existing demand