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Stumper 1 - Assignment Example

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In economics, we relate the equity with fair distribution of income or goods and services to various groups of people within the economy. The supply is related with the wants of the customers.
When the customer buys the product…
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Stumper 1
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Teacher Macro & Micro economics Stumper To determine the equilibrium price and quantity of widgets: Previous knowledge The quantity supplied is related directly to price
2. The quantity demanded is related inversely to price
3. when income rises, we buy more
Given:
Qs = 23 + 10P, equation represents the supply of widgets
Qd = 15 - 3P + 2I, equation represents the demand for widgets
Case 1: Average income equals $30 thousand (I = 30)
We know that the goods and services are scarce. In economics, we relate the equity with fair distribution of income or goods and services to various groups of people within the economy. The supply is related with the wants of the customers.
When the customer buys the product the demand for it increases. Then the sellers need to produce it and this in turn increases the demand for the product. The quantity supplied is related directly to price and the quantity demanded is related inversely to price. From this we can conclude that the equilibrium price can be achieved at the place where the supply and the demand curve intersect. (Sexton, p.121)
We can say that the equilibrium price is obtained where the quantity demanded is equivalent to the quantity supplied.
This means Qs= Qd
In the equation Qd = 15 - 3P + 2I, where I=30
By substituting I value in the equation we have,
Qd = 15 - 3P + 2×30
= 15 - 3P + 60 (by multiplying the value 2and 30)
= 75-3P (by adding 15 and 60)
We have, Qd=75-3P
We can use the A figure and obtain the P value
Qs = 23 + 10P and Qd=75-3P
Therefore,
Qs= Qd
23 + 10P = 75-3P
10P + 3P = 75-23
13P = 52
P = 4
The equilibrium price and quantity of widgets in the market when Average income equals $30 thousand is 4
Qd= 75-3P =75-12= 63
Case 2: Average income equals $23.5 thousand (I = 23.5)
Given: the economy suffered a severe recession and average income fell to $23.5 thousand
By substituting I value in the equation Qd = 15 - 3P + 2I we have,
Qd = 15 - 3P + 2×23.5 (by multiplying the value 2and 23.5)
= 15 - 3P + 47 (by adding 15 and 60)
= 62-3P
We can use the A figure and obtain the P value
Qs = 23 + 10P and Qd=62-3P
Therefore,
Qs= Qd
23 + 10P = 62-3P
10P + 3P = 62-23
13P = 39
P = 3
Qs = 23 + 10P= 23 + 30= 53
Price Quantity Demanded or Supplied
4 63
3 53
Quantity
63
53
1 2 3 4 Price
The new equilibrium price and quantity of widgets in the market when average income equals $23.5 thousand is 3.
This shows that the price of the equilibrium price and quantity of widgets in the market decreases when the average income decreases and this can be seen in the above graph.
So we can conclude that the competitive markets for different types of labor are determined by supply and demand.
This can be related with the principles that we learnt as, the increase in the income increases the demand for a particular good (Besanko , p. 36)
Works Cited
Besanko, David , et al., Micro Economics, Demand and Supply Analysis, Print.< http://books.google.co.in/books?id=978PKop7Cp8C&printsec=frontcover&dq=micro+economics+Besanko,+David&hl=en&sa=X&ei=QunuT_TUOsTnrAeKltm9DQ&ved=0CDUQ6AEwAA#v=onepage&q=micro%20economics%20Besanko%2C%20David&f=false> Sexton, Robert, Exploring Microeconomics, Equilibrium price and quantity, South –Western, Cengage Learning,2011.Print.< http://books.google.co.in/books?id=TPomIJqNK-sC&pg=PA121&dq=micro+economics+on+equilibrium+price+and+quantity&hl=en&sa=X&ei=6OTuT7X_EMforAeW19y9DQ&ved=0CEEQ6AEwAQ#v=onepage&q=micro%20economics%20on%20equilibrium%20price%20and%20quantity&f=false> Read More
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