Worksheet 3 (Original)
Worksheet 3 (Original)
Worksheet 3 (Original)
ECONOMICS ASSIGNMENT
Q1. Demand Analysis. The demand for refrigerators is often described as cyclical, and very
sensitive to refrigerator prices and interest rates. Given these characteristics, describe the
effect of each of the following in terms of whether it would increase or decrease the quantity
demanded or the demand for refrigerators. Moreover, when price is expressed as a function of
quantity, indicate whether the effect of each of the following is an upward or downward
movement along a given demand curve or instead involves an outward or inward shift in the
relevant demand curve for refrigerators. Explain your answers.
Q2 Demand and supply conditions in the market for unskilled labor are important concerns
to business and government decision makers. Consider the case of a federally mandated
minimum wage set above the equilibrium or market clearing wage level. Some of the
following factors have the potential to influence the demand or quantity demanded of
unskilled labor. Influences on the supply or quantity supplied may also result. Holding all
else equal, describe these influences as increasing or decreasing, and indicate the direction of
the resulting movement along or shift in the relevant curve(s).
Q3 Coupon Promotions, Inc., is a coupon book publisher with markets in several sout
hwestern states. CPI coupon books are either sold directly to the public, sold through
religious and other charitable organizations, or given away as promotional items. Operating
experience during the past year suggests the following demand function for its coupon books
Where Q is quantity, P is price ($), Pop is population, I is disposable income per capita ($),
and A is advertising expenditures ($).
A. Determine the demand curve faced by CPI in a typical market where P = $5, Pop =
1,000,000 persons, I = $35,000 and A = $10,000. Show the demand curve with
quantity expressed as a function of price, and price expressed as a function of quantity
ANS-: IN THIS CASE-: Q = 10000 – 5,000P+ 0.02POP + 0.41A + 0.6A
= 10,000 – 5,000P + 0.02(10,00,000) + 0.4(35,000) + 0.6(10000)
Q = 50,000- 5,000P
5,000P = 50,000 – Q
P = $10- $0.0002Q
Q4 Air California, Inc. is a regional airline providing service between Los Angeles,
California and Las Vegas, Nevada. An analysis of the monthly demand for service has
revealed the following demand relation:
where Q is cases supplied per year, P is the wholesale price per case (Rs), PL is the average
price paid for unskilled labor (Rs), PK is the average price of capital (in percent), and W is
weather measured by the average seasonal rainfall in growing areas (in inches).
A. Determine the industry supply curve for a recent year when P = Rs80, PL = Rs10, PK =
12%, and W= 25 inches of rainfall. Show the industry supply curve with quantity
expressed as a function of price and price expressed as a function of quantity.
ANS: -: - 7,000,000 +4,00,000 – 2,000,000 PL – 15,00,000 PK + 1,000,000W
= -7,000,000 + 4,00,000P – 2,000,000(10) – 15,00,000(12) + 1,000,000(25).
= - 20,000,000 + 4,00,000P
PRICE AS A FUNCTION OF QUANTITY SO: -
-20,000,000 + 4,00,000P
4,000,000P = 20,000,000+ Q
P = $50 + $0.0000025Q
B. Calculate the quantity supplied by the industry at prices of Rs50, Rs75 and Rs100 per
case
ANS: - WHEN, Price = 50rs so, Q = -20,000,000 + 4,00,000(50) = 0
When Price = 75rs. Q= -20,000,000 + 4,000,000(75) = 10,000,000
When Price = 100rs Q = -20,000,000 + 4,00,000(100) = 20,000,000
C. Calculate the prices necessary to sell 10,000, 25,000, and 50,000 units
ANS. Q = 10,000 so, P = $50 + 0.0000025(10,000) = 50.025
When Q = 25,000 SO, P = $50 + 0.0000025(25,000) = 50.0625
When Q = 50,000 SO, P = = $50 + 0.0000025(50,000) = 50.125
Demand and supply functions for Florida orange juice are as follows
where P is the average price of Florida ($ per case), PS is the average retail price of canned
soda ($ per case), Y is income (GNP in $billions), T is the average daily high temperature
(degrees), PL is the average price of unskilled labor ($ per hour), and PK is the average cost
of capital (in percent).
A. When quantity is expressed as a function of price, what are the Florida demand and
supply curves if P = $11, PS = $5, Y = $12,000 billion, T = 75 degrees, PL = $6, and
PK = 12.5%.
B. Calculate the surplus or shortage of Florida orange juice when P = $5, $10, and $15
For calculating the surplus and shortage we deduct Quantity Demanded from Quantity supplied (Qd – Qs):
NOTE: If the Quantity demanded is greater than quantity supplied so it’s a (shortage)
If Qu antity Supplied is greater than Quantity demanded its a(surplus)
In First Case it was, 34,000,000 – 7,000,000 = 27,000,000 (SHORTAGE)
In Second case: 19,000,000 - 28,000,000 = 9,000,000 (SHORTAGE)
In Third Case: = 31,000,000 - 22,000,000 = 9,000,000 (SURPLUS)
Equilibrium= 25,000,000.