Answer each of the following questions. Include both the question and the respon

Question

Answer each of the following questions. Include both the question and the response in your submission. Be sure to use microeconomics terminology, wherever applicable, while answering the questions. 1. What is a demand schedule? What is a demand curve? 2. What do economists mean when they use the Latin expression “ceteris paribus”? 3. What is the difference between a change in demand and a change in quantity demanded? 4. What is the Law of Demand? Use the substitution effect and the income effect to explain why an increase in the price of a product causes a decrease in the quantity demanded. 5. What are the main variables that will cause the demand curve to shift? Give examples. 6. What is a supply schedule? What is a supply curve? 7. What is the difference between a change in supply and change in quantity supplied? 8. What is the Law of Supply? What are the main variables that will cause a supply curve to shift? Give examples. 9. What do economists mean by market equilibrium? 10. What do economists mean by a shortage? 11. What do economists mean by a surplus? 12. What happens in a market if the current price is above the equilibrium price? What happens if the current price is below the equilibrium price? 13. What is the formula for the price elasticity of demand? Why is not elasticity measured by the slope of the demand curve? 14. If a 10 percent increase in the price of Cheerios causes a 25 percent reduction in the number of boxes of Cheerios demanded, what is the price elasticity of demand for Cheerios? Is the demand for Cheerios elastic or inelastic? 15. Is the demand for most agricultural products elastic or inelastic? Why? 16. What are the key determinates of the price elasticity of demand for a product? Which determinate is the most important? 17. If the demand for orange juice is inelastic, will an increase in the price of orange juice increase or decrease the revenue received by orange juice sellers.

Explanation / Answer

1) tabular representation of quantity demanded of a good at different prices is demand schedule.

demand curve- graphical representation of quantity demanded of a good at different prices.

2) ceteris paribus means keeping other things constant or holding other things equal.

3) change in demand means at the same price you are demanding more or less of a good due to change in the factors affecting that good other than the price. like say at $2 you are consuming one slice of bread and suppose your income increases then at $2 i.e for the same price you will increase the consumption of bread slices.

change in quantity demanded is change in the quantity of goods due to change in the price of good keeping other factors affecting that good constant. at price $2 you were consuming 4 oranges and suppose price goes up to $4 then you will consume 2 oranges with the same ncome you have.

4) law of demand- it relates a good to its price . demand for a good decreases as price increases and vice -versa keeping other things constatnt is law of demand.

i am not going int graphical illustration here. if price of a good increases quantity demanded will be less , people will buy other goods this is substitution effect as we have substituted one good with another related good. when the price increase and our income remains same then we will find ourselves little bit poorer due to price increase than before so we purchase less of that good this is income effect.

5) all other factors else than the price of a good. like change in income , taste and preferences or price of other goods cause shift in the demand curve . like decrease in price of coffee will cause the leftward shift in the demand of tea as people will demand less tea at the same price and increase the consumption of coffee.

6) tabular representation of quantity supplied of a good at different prices is supply schedule.

graphical representatio of quantity supplied of a good at different prices is supply curve.

7) same as change in demand and change in quantity demanded. when the price of good changes then there will be change in quantity supplied whereas when other things like taste preferences income or price of other goods change ten there will be change in supply.

8) law of supply . there is direct relatio between price and quantity supplied . an increse in price of good all else constant will result in increase in quantity supplied , this is law of supply.

shift in the supply curve is due to change in other factors else than the price of own good like availabiliy of labour cost of raw material , taxes , subsidies. if cost of raw materials is low then at the same price more goods will be supplied and supply curve will shift to right.

9) market equilibrium means where demand curve and supply curve intersects and equilibrium quantity and equilibrium orice is determined. at market equilibrium quantity demanded is equal to quantity supplied.

10) shortage or excess demand in economics is when supply does not meet the demand expectation . demand is excess of supply.

11) opposite of shortage is surplus when supply is excess of demand then there is surplus.

12) this is related to above two questions. if current price is above the equilibrium price then there is excess supply or surplus of goods in the market. producers will supply more goods and consumers will demand less as a result of which there will be downward pressure on prices and current price will converge to equilibrium price.

if current price is below the equilibrium price then there will be excess demand of goods , consumers will demand more goods and producers will supply less as a result of which there will be upward presssure on price and price will converge to equilibrium price.

13) price elasticity of demand = (% change in demand) / (% change in price) or in other words price responsiveness of a good . how much demand of a good changes due to change in price .

The measurement of slope is sensitive to the units chosen for quantity and price

Elasticity is different at different points of demand curve while slope will be same throughout the demand curve.

14) simply apply the formula (% change in demand) / (% change in price) = 25/10= 2.5 it will come with neagative sign as demand decreases due to increase in price so elasticity is - 2.5 but usually we take absolute value.

the demand is elastic. as absolute value 2.5 is greater than 1 . if elasticity is less than 1 then demand will be inelastic.

15) most agricultural products are necessity goods and for necessity goods demand is inelastic.

16) time frame , expensiveness , substitutes are the key determinants. substitutes of a good is the most important.

17) revenue increases as here given that demand is inelastic so an increase in price will lead to less than proportionate decrease in the demand. elasticity is less than 1 here.

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