ECONOMICS ANALYSIS FOR MANAGERS

COMPILED BY SUBMITTED TO DATE CLASS ASSIGNMENT NO: Ghulam Mustafa Dr. Alam Raza Feburary 6, 2012. Monday (15:00-18:00) 02 (13238)

IQRA UNIVERSITY

Q NO.1: Consider the demand for computers . For each of the following state the effect of demand:

a) An increase in consumer income:

As computer is a normal good, a rise in the income of the consumers will lead to an increase in the demand for computers, therefore, demand curve will be shifted outwards as shown in figure:

b) An increase in the price of computers:

An increase in the prices will lead to decrease in the quantity demanded of the computers and the demand curve will move along the curve. As shown in figure:

c) A decrease in the price of internet service provider.

A decrease in the prices of internet will increase the demand for computers, as they both are complementary goods and the demand curve will shifted outwards as shown in figure:

d) A decrease in the price of semi-conductors.

A decrease in the prices of semi-conductors will lead to increase in the demand of computers because cost of computer may decrease and the price might go down and demand curve will move along the curve.

e) It is October and consumers expect that computers will go on sale just before Christmas. The demand will decrease, because consumers have future expectations that prices will decrease on Christmas therefore demand curve will shift leftward as shown in figure:

Q NO.3: The demand curve is given by:

Qd: 500-5Px+0.5I+10Py-2Pz where Qd= quantity demanded for good X Px= price of good X I= consumer income, in thousands Py= price of good Y Pz= price of good Z

a) Based on the demand curve above, X is a normal or an inferior good ? It is the normal good, because as income increases demand for good X also increases. b) Based on the demand curve above, what is the relationship between good X and good Y ? They both are substitute goods.

c) Based upon the demand curve above, what is the relationship between good X and good Z ? They both are complementary goods.

d) What is the equation of the demand curve if consumer incomes are $30,000 , the price of good Y is $10 and the price of good Z is $20? The equation will be as follows: 500-5Px+0.5(30)+10(10)-2(20) Qd: 575-5Px e) Graph the demand curve that you found in (d) showing intercept and slopes.

f) If the price of good X is $15, what is the quantity demanded? Show this point of your demand curve.

g)

Now suppose the price of good Y rises to $15, Graph the new demand curve.

Q NO.4: The supply curve is given by

Qs: -200+20Px-5Pi+0.5Pz where Qs= quantity supplied for good X Px= price of good X Pi= price of inputs to good X Pz= price of good Z a) Based on the supply curve above, what is the relationship between good X and good Z ? They both are the subsitutes goods. b) What is the equation of the supply curve if the input prices are $10 and the price of Z is $20 ? The equation will be as follows: -200+20Px-5(10)+0.5(20) Qs: -240+20Px c) Graph the supply curve that you found in (b) showing intercept and slopes.

d) What is the minimum price at which the firm will supply any of good X at all ? At the price of 12, the firm will be providing 0 outputs, any price above it, will make the firm supply good X i.e $13. e) If the price of good X is $25, what is the quantity supplied? Show this point of your supply curve.

f) Now suppose the price of inputs falls to $5, Graph the new supply curve.

Q NO.5: Suppose the demand and supply curves for a product are given by:
Qd=500-2P Qs=-100+3P a) Graph the supply and demand curve

b) Find the equilibrium price and quantity: 500-2P=-100+3P 600=5P P=120 Put P in to both equations where Qs = Qd = 260
c) If the current price of the product is $100, what is the quantity supplied and the quantity demanded? How would you describe this situation, and what would you expect to happen in this market?

In this situation the Qd= 500 - 2(100) = 300 units and Qs= -100+3(100) = 200 units , which shows that the quantity supplied is less than the quantity demanded. Therefore, there will be the shortage of such product in the market, as buyer is willing to buy more than seller is willing to produce.
d) If the current price of the product is $150, what is the quantity supplied and the quantity demanded? How would you describe this situation, and what would you expect to happen in this market?

In this situation the quantity demanded Qd= 500 - 2(150) = 200 units and Qs= -100+3(150) = 350 units , which shows that the quantity supplied is more than the quantity demanded. There will be the surplus of such product in the market, as buyer is willing to buy less than seller is willing to produce. e) Suppose the demand changes to Qd=600-2P. Find the new equilibrium price and quantity, and show this on your graph. 600-2P=-100+3P 700=5P P=140 Put P in to both equations where Qs = Qd = 320