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Principles of MicroEconomics - Speech or Presentation Example

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Demand for batter depends on the price of butter itself, price of its substitutes, price of complimentary goods and income. Therefore demand function for butter can be portrayed in notation form as:
If all the factors are held constant increase in price of margarine which is…
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Principles of MicroEconomics
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Microeconomic Principles Demand can be defined as the correspondence between the quantity of that good or service demanded by consumers (the dependent variable) and a host of relevant explanatory variables.
1. Demand for batter depends on the price of butter itself, price of its substitutes, price of complimentary goods and income. Therefore demand function for butter can be portrayed in notation form as:
D=f (Pb, Ps, Pc, 1+/-)
Where;
D=demand for butter
f=a functional relationship with arguments used in parenthesis
Pb=price of butter
Ps=price of substitutes
Pc=price of complimentary goods
I= disposable income
+/-notes whether there is recession (+) or not (-)
a) Increase in price of margarine
P
p1

p0 D1
D0
0 Q0 Q1 Q
If all the factors are held constant increase in price of margarine which is a substitute of butter will make consumers to shift from consuming margarine hence increasing the demand of butter. Therefore the demand curve will shift from D0 to D1. Due to increase in demand the price of butter also will start to rise.
b) Increase in price of milk
P
P1
p0
D0
0 Q1 Q0 Q
Increase in price of milk which is a raw material for processing of milk. This will cause an increase in price of butter. Holding all other factors constant the demand of butter will reduce form Q0 to Q1.this can be seen well from the graph.
c) Decrease in income levels
p
p0
D0
D1
0 Q1 Q0 Q
Consumer purchasing power will be primarily determined by the disposable income that they are left with after all the deduction have been made .this can be expressed in notation form as:
Yd=Y-(TY+DY)
Yd=Disposable income
Y=Gross income
TY=income tax
DY=other deductions taken at source that are dependent upon the income level.
Therefore decrease in disposable income in real terms will cause demand of butter to reduce people will be having less income to spend. The demand curve will shift from D0 to D1 as shown in the graph.
2.
a. True. Price elasticity of demand is the responsiveness or sensitivity of consumers to price changes. The demand curve shows the quantity of goods or services individuals are willing are will to buy at different prices. Price elasticity coefficient us given by:
Εd= percentage change in quantity demanded of product X
________________________________________
Percentage change in price of product X
b. False. This because cross-price elasticity of demand is a ratio of the percentage change in the quantity demanded of some good X to a percentage change in the price of some other Y. This means that if the two goods are substitutes the cross elasticity will be positive and if the cross-price elasticity of demand is negative the good are complimentary.
c. True. This is because in the short run everything is fixed, therefore constructors have limited time to increase construction of apartments. Even though construction firms can still increase production by increasing labor force and efficiency, but relative to the long run supply is still inelastic. In the long run construction firms have enough time to change quantities of their resources and for new firms can start constructing apartments. Therefore the longer the time the more likely will increase quantity of apartments supplied. Even-though the time may not be long enough to change their production techniques to meet the supply needs, they have longer responsive time to switch resources such as raw materials, location of construction and amount of labor.
3
i. Given demand function QD=160-8P and supply function QS=70+7p
At equilibrium QD=QS
160-8p=70+7p
-8p-7p=70-160
-15p=-90
P=90/15=600
p = $600
ii. At monthly price of $300
Given demand function QD=160-8p
At equilibrium p=$600
Then QD=160-8(600)
QD=1600000-4800
=1595200 people
When monthly rent is $300
QD=1600000-8(300)
QD=1600000-2400
QD=1597600 people
Change in city’s population=1597600-1595200
=2400 people
iii. Given supply function QS=70-7p and P=$900
Then
QS=700000+7(900)
QS=700000+6300
=706300 apartments
At equilibrium p=$600
Then QS=700000+7(600)
QS=700000+4200
=704,200 apartments
Increase in supply=706300-704200
=2100 apartments
50percent of increase come from new construction
The 50/100*2100=1050
Therefore new constructed apartments are 1050
4. Given QD=470 billion cigarettes
P=$2
Εd= -0.4
Εs= 0.5
p S0
2
0.5 -0.4
D0
0 23.5 packs Q in billions Read More
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