Today's Microeconomic

Question 1

A)

Demand curve: a relation showing the quantities of a good that consumers are will and able to buy at various prices during a given period of time, other things content.

There are many things that can cause demand curve to change, but price is not the only variable that determines how much of a good or services consumer will buy. According to ÐŽ§Microeconomics 6th edition by Jackson MclverЎЁ. There are several determinant changes demand curve, such are:

1. The number of buyers

2. Taste & preference

3. Income

4. Expectation

5. Price of related products

There are two different change can occur in demand.

1. Change in quantity demand, which is a movement between points along a stationary demand curve, ceteris paribus.(Referring to Economic 2nd Edition by Sloman & Norris)

2. Change in demand, which is an increase or decrease in the demand at the each possible price. An increase in demand is a rightward shift in the entire demand curve. A decrease in demand is a leftward shift in the entire demand curve. According to ÐŽ§Microeconomics 6th edition by Jackson MclverЎЁ

As you known the meaning of change in quantity demand. It change cause by the price. Here is a graph explanation with better detail.

LetÐŽ¦s say at the price $1.00, the quantity demand is 5 million newspaper per week. Which is point A shown in the graph A. if the price rises to $1.50, the quantity of demand would decrease to point B. and this shows the relationship on the demand curve as a movement up along the curve from point A to point B.

On the other hand, change in demand is mainly cause by non-price determinant which means is a decrease or increase in the demand at each possible price. Then is ceteris paribus (only one thing change at a time) no longer applies and if one of the determinant changes, the demand curve shifts to rightward, if demand increase; leftward if demand decrease.

A change in some non-price determinant can cause an increase in demand from D1 to D2 shown in graph B. In this case letÐŽ¦s say the readerÐŽ¦s taste are changed, they like to read more newspaper than magazine now. At price $1.00 on D1 (point A), 5 million would be demanded per week. At this price on D2 (point B) the demand increase to 6 million per week.

Supply is a relation showing the quantities of goods producers are willing and able to sell various price during a given time period, other things are constant.

Supply curve is a curve showing the quantities of a good supplied at various prices, other things constant.

Just like demand curve, there are several non-price determinants that shifts supply curveÐŽ¦s position.

1. Number of sellers

2. Technology

3. Taxes & subsides

4. Input prices

5. Prices of other goods

6. Expectation

LetÐŽ¦s say if the price is $1.00 at point A, the quantity supplied by firms is 5 million per wee. If the price gains to $1.50 at point B. the quantity supplied will increase from 5 million to 6 million per week.

However if there is any changes in non-price determinant it causes whole supply curve shifts. LetÐŽ¦s say the technology changes. At price of $1.00 on S1 (point A), 5 million of newspaper can be supplied. Because technology improves, now the same price 6 million can be supplied per week. So S1 shifts to S2, point B occurs.

B)

A normal good is any good or service for which there is a direct relationship between changes in income & its demand curve. Obviously as income increase causes buyer to purchase more. On the other hand, if the price of normal goods rises, but their income constant, then the demand for normal good will decreases. In the diagram below, the lined labeled ÐŽ§DЎЁ is the demand curve for bottled wines. P are the prices, Q are the quantities. At the price $15, 5 bottled wines are demanded at point A. But with the income effect. As the price of bottled wine increases from $15 to $20, it causes buyer can only purchase 2 bottled wine at point B with their fixed income, without giving up buying other goods.

However if the price gone too high for the buyers, the substitution effect can occur, which means there are other good that they regard as substitutes for wines. When wine become more expensive, they might switch to have other alcoholic drink instead. E.g. beer, so causes demand for wine decrease.

Question 2

A)

There are two factors of production, as either variable factors or fixed factors, which give increase respectively, to variable cost and fixed cost. Fixed factor is any resource for which the quantity cannot change during the period of time under consideration. For instance, the physical size of a firmÐŽ¦s plant and the production capacity of heavy machinery cannot change easily within a short time. They have to remain as fixed input while managers decide to vary output. Additionally to the fixed factors, the firms use variable factors in production process. Variable factor is any resources for which