Group Assignment - Introduction to Microeconomics

Introduction to Microeconomics

Question 1

Answer (a)

The following figure shows the equilibrium price of the chewing gum.

In the above figure, the quantity demand and the quantity supply intersect each other. The equilibrium price is equal to 75 cents and the equilibirum quantity is 125 millions per pack where the quantity demand of chewing gums is equal to the supply of chewing gums.

Answer (b)

When the price of chewing gum becomes 70 cents, the quantity demand will be 80 million and the quantity supply will be 60 millions. As a result, there will be a shortage of chewing gums in the market because the demand greater than the supply.

Answer (c)

When the price of chewing gum becomes 30 cents, the quantity demand will be 160 million and the quantity supply will be 80 millions. As a result, there will be a surplus of chewing gums in the market because the supply is greater than the demand.

Answer (d)

When the quantity supply of chewing gums is decreased by 40 millions packs a week, the quantity demand will be increased. It is only under the scenario when the price range of chewing gums is 20 to 40 cents. At the price of 60 cents, the quantity demand and quantity supply will be equal. When the price of chewing gums increases after 60 cents, the demand will be decreased and supply will be increased.

Question 2

Answer (a)

When the price falls from $400 to $350 a chip, the total revenue will be increased by $250. Similarly, the total revenue will be decreased by $250 when the price falls from $350 to $300.

Answer (b)

The demand for chips will be unit elastic at the average price of $350.

Answer (c)

The demand for chips will be elastic at the average price of $250.

Answer (d)

Alex's ...