Economics: A Contemporary Introduction - Essay Example

1. On the other hand, the slope of the supply function is 1 meaning that for every increase of the price of the good, supply increases by the same amount as that supplied previously.

Lesson three

Demand: P = 800 - 2 Q D

Supply: P = 200 + 1 Q S

At equilibrium, QD = QS, so the system of equations can be solved as follows:

800 – 2 Q = 200 + 1 Q

600 = 3Q

Q = 200

The quantity demanded is 200 units

Also, P = 800 – 2 Q = 800 – (2 x 200) = 400

Equilibrium price is 400

Lesson four

Market for sailboats

1. If ESPN coverage of America's Cup sailboat races increases interest in sailing, it will have two effects: raising the equilibrium quantity and raising the price of sailboats. There will be a shift towards the right for the demand curve, driving price and quantity.
2. If producers expect the price of sailboats to rise next year, there will be two effects: the lowering quantity supplied and raising the price of the sales boat. The will be a leftward shift of the supply curve.

    Lesson five

1. The price elasticity of demand for food is higher in Tanzania than United States because of the difference in average income. The larger the amount of income spent on food purchases, the larger is the price elasticity of demand for food (Parkin, 2007, p.93). The average income in Tanzania is very low when compared to that of United States, implying that the proportion of income spent of food is large. This high price elasticity imply that much of the income in Tanzania is spent on food purchases while only a small amount of income is spent on food in US. Note that the high price elasticity does not mean that food purchases in Tanzania are more compared to US, but only indicate income spending on food.
2. Tax on gasoline will provide more tax revenue than tax on restaurant meals. This is because gasoline does not have really close substitutes like restaurant meals. Despite the price changes in gasoline, automobiles must drive on the product. However, if restaurant meals became expensive, people may opt to cook by themselves and evade the high prices of restaurant meals. Therefore, tax revenue which is dependent on the quantity of goods sold and tax will be higher for gasoline than restaurant meals.  

Lesson six

80. Consumer surplus at the competitive equilibrium = the area above the price level, but below the demand curve. We will calculate the area of a triangle, where the height is 12 – 8 = 4 or the intercept on the price axis less the equilibrium price. The base is the equilibrium quantity (40). Therefore area is ½ x 40 x 4 = 80.
81. Producer surplus at the competitive equilibrium is the area below the equilibrium price and above the supply curve. This is is a triangle with the price (8) being the height and the equilibrium quantity (40) being the base. Therefore are = ½ (40 x 8) = 160
82. Total surplus at competitive equilibrium equals the sum of consumer surplus and producer surplus… 80 + 160 = 240.
83. If the price rose to $10, the pizzas will be sold equally the quantity demanded (20) since the supply will be greater than demand. Assuming that the equilibrium price will shift to 10, the consumer surplus will definitely decrease. The height of the triangle will be 12 – 10 =2 and the base will be 20. Therefore the consumer surplus = ½ (20 x 2) = 20.