Consider the Demand for Computers. for Each of the Following, State the Effect on Demand

1. Consider the demand for computers. For each of

the following, state the effect on demand:

1. An increase in consumer incomes

When consumer’s incomes rise, the demand for computers may also increase.

1. An increase in the price of computers

Quantity of demand may drop

1. A decrease in the price of Internet service providers

Internet service is complementary goods, so it causes the increase in demand for computers.

1. A decrease in the price of semiconductors

Semiconductors is the related goods for computers, the decrease of its price may lead to increase demand for computers.

1. It is October, and consumers expect that computers will go on sale just before Christmas.

The future expectation is one of the non-price factors for computers’ demand. When consumers expected that computers may go on sale, it will attract consumers to demand more.

3. The demand curve is given by QD = 500 − 5PX + 0.5I + 10PY − 2PZ

where

QD = quantity demanded of 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, is X a normal or an inferior good?

X is normal good, because its coefficient is negative.

b. Based on the demand curve above, what is the relationship between good X and good Y?

Good X and Y may be substitutes, because they have relationship with demand of good X.

c. Based on the demand curve above, what is the relationship between good X and good Z?

Good X and Z are also substitutes.

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?

Where: I = 30,000; Py = 10; Pz = 20

[pic 1]

 or [pic 2][pic 3]

e. Graph the demand curve that you found in (d), showing intercepts and slope.

The intercept of the demand curve is 3112 and slope is -0.2

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

Where Px = 15

[pic 4]

[pic 5]

[pic 6]

        Px=15 Qd=15485[pic 7][pic 8]

[pic 9]

[pic 10]

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

Where Py=15

 or [pic 11][pic 12]

[pic 13]

[pic 14]

[pic 15]

        [pic 16][pic 17]

[pic 18]

[pic 19]

        D1                           D2

4. The supply curve is given by QS = −200 + 20PX − 5PI + 0.5PZ

where

QS = quantity supplied of 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?

Good Z are related to production of good x

b. What is the equation of the supply curve if input prices are $10 and the price of Z is $20?

Where Pi=10; Pz=20

[pic 20]

Or [pic 21]

c. Graph the supply curve that you found in (b), showing intercepts and slope.

[pic 22]

        Slope 0.05[pic 23]

(0,12) intercept

[pic 24]

d. What is the minimum price at which the firm will supply any of good X at all?

At minimum price $12, supplier may supply 0. According to this, supplier may supply any of good X at price over $12

e. If the price of good X is $25, what is the quantity supplied? Show this point on your supply curve.

Where Px =25

Qs=260

[pic 25]

        Slope 0.05[pic 26]

[pic 27]

        (25,260)

(0,12) intercept

[pic 28]

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

Where Pi=5

 or [pic 29][pic 30]

[pic 31]

        S1        [pic 32][pic 33]

S2

[pic 34]

7. Consider the following markets, and draw representative supply and demand curves.

a. What is the effect of bad weather on the equilibrium price and quantity of coffee beans?