The market supply curve of rubber erasers is given by QS = 35,000 + 2,000P.
a.) The market supply curve of rubber erasers is given by QS = 35,000 + 2,000P. The demand for rubber erasers can be segmented into two components. The first component is the demand for rubber erasers by art students. This demand is given by qA = 17,000 - 250P. The second component is the demand for rubber erasers by all others. This demand is given by qO = 25,000 - 2000P. Derive the total market demand curve for rubber erasers. Find the equilibrium market price and quantity.
b.) Given the products below and the events that affect them, indicate what happens to demand or supply, and the equilibrium price and quantity. Identify the determinant of demand or supply that causes the shift and show the shifts graphically for each example.
i. Blue jeans. The wearing of blue jeans becomes less fashionable among consumers.
ii. Computers. Parts for making computers fall in price because of improvements in technology.
iii. Lettuce. El Nino produces heavy rains that destroy a significant portion of the lettuce crop. iv. Chicken. Beef prices rise because severe winter weather reduces cattle herds.
Posted in Economics, asked by fifi, 6 years ago. 3970 hits.
We need to first figure out if the two groups of consumers enter the market at different prices. To do this, we need to find the price at which the quantity demanded by art students is zero and the price at which the quantity demanded by the other consumers is zero:
Qa=0 ⇒ Pa=17,000/250=68 (i.e. the art students enter the market when the price is less than or equal to $68)
Qo=0 ⇒ Po=25,000/2000=12.5 (i.e. the other students enter the market when the price is less than or equal to $12.5)
Since the two groups of consumers enter the market at different prices, the aggregate market demand curve (Qd) is going to have a kink.
The aggregate market demand is given by summing all positive components of demand at each price.
Thus, the market demand curve is:
If P≤12.5: Qd=Qa+Qo=(17,000-250P)+(25,000-2000P)=42,000-2,250P
If P≥12.5: Qd=Qo =17,000-250P
The equilibrium quantity occurs where quantity demanded in the market equals quantity supplied. Thus, we can equate supply and demand and solve for the market price.
Qs=Qd⇒ 35,000+2,000P=42,000-2,250P ⇒ 4250P=7,000 ∴ The equilibrium price is 7,000/4,250=1.65 The equilibrium quantity is 42,000-2,250(1.65)=38,287.5≈38,300
i)Demand for blue jeans falls , therefore demand curve shifts to the left resulting in lower new equilibrium price.
ii)Both supply and demand for computers increases , therefore both supply and demand curve shift to the right and new equilibrium price will be lower than the earlier price.
iii)Supply of lettuce crop reduces therefore supply curve shifts to the left leading to a higher equilibrium price and quanitity demanded decreases.
iv)Deamnd for chicken beef reduces therefore demand curve shifts to the left resulting in higher equilibrium price