econs topic 2 tut 4-5 ( answers)

8/11/2019 Econs Topic 2 Tut 4-5 ( Answers)

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HWA CHONG INSTITUTIONC1 H1 and H2 Year One Economics 2010

Tutorials #!" Teories o$ %emand & Su''l(

TUTORIAL #4 THEORY OF DEMAND

Section A: Tutorial Foundation

(I S!ort "uetion

($ Di%%erentiate &et'een t!e ter )deand* and )'ant* a ued in econoict!eor+,

Conce'tual distinction

Wants are sim'l( desires tat are not necessaril( )ac*ed )( 'urcasin+ 'o,er-%emand on te oter and is desire tat is )ac*ed )( 'urcasin+ 'o,er-

- ./ deire %or 0 1S ./ unliited &+ de%initionD ./ deire 1 22 ./ liited &+ de%inition

(3 Fill in t!e &lan:

.e( terms $or anal(tical 'ur'oses

%emand determinants can )roadl( )e di/ided into 'rice and non!'rice determinants-

"uantit+ deanded can+es ,en tere is a can+e in 'rice ,ic is so,n as ao5eent alon+ te same demand cur/e-

An( o$ te non!'rice determinants or conditions o$ demand ,ill result in a can+e in

deand and is so,n )( a !i%t o$ te demand cur/e-

(6 -!at i )ceteri 2ari&u*7 -!+ i it i2ortant7

A u&i8uitou au2tion ued in econ anal+i '!en dealin9 'it! an+5aria&le,

It is a *e( assum'tion used in economic anal(sis to allo, us to consider or ta*e tecan+e in eac economic /aria)le one at a time ,ilst not allo,in+ $or e/er(tin+ tocan+e at te same time-

Witout te assum'tion o$ ceteris 'ari)us it is im'ossi)le to do s(stematic economic

anal(sis- or instance i$ all demand determinants are allo,ed to can+e at tesame time it is not 'ossi)le to anal(se ,at ,ill a''en to 'rices in te mar*et-

H'a !on9 Intitution, All Ri9!t Reer5ed, Teac!er; o2+1





(4 <=TIDE %rae'or > Lit t!e ? a@or non=2rice deterinant o% deand

%emand is in$luenced )( 2 /er( )road $actors /i3♦ %esira)ilit( 4 ca'a)le o$ satis$(in+ our ,ants5

♦ A$$orda)ilit( 4 'urcasin+ 'o,er or a$$luence5

As a learnin+ aid6tool te TI%E $rame,or* is a neat and and( ,a( to remem)er allte ma7or non!'rice determinants38 9 8rices o$ related +oodsT 9 Taste and 8re$erences-I 9 Income% 9 %emo+ra'ics 4'o'ulation sie and com'osition5E 9:u(ers; E<'ectations

(II Multi2le !oice "uetion

1- %emand o$ a +ood is said to )e e$$ecti/e onl( ,en it is associated ,it A- te satis$action o$ a ,antB. willingness and ability to pay for the good C- su$$icient dis'osa)le income to 'a( $or te +ood%- te e<istence o$ an ade=uate su''l( o$ te +ood

2- Wat ,ould cause a mo/ement u' alon+ te demand cur/e $or Good >?

A- A can+e in consumer tastes:- A decrease in te demand $or Good >C. A change in price of Good X.%- A reduction in te 'rice o$ a su)stitute +ood

@- Goods > Y and are normal +oods-Good > is 'urcased as a su)stitute $or +ood Y and as a com'lement o$ +ood - I$ te'rice o$ > remains constant ,ile tat o$ Y $alls and tat o$ rises sales o$ > ,ill

A- IncreaseB. DecreaseC- Can+e in an indeterminate $asion

%- Bemain constant i$ te 'ercenta+e increase in te 'rice o$ is te same as te'ercenta+e $all in te 'rice o$ Y

Ea2le: B . 2lain 'ater Y . Ceero%tdrin . alted nut

Section C: A22lication "uetion (6in






Maret For <etrol

An( anal(sis usin+ demand and su''l( conce'tsmust relate to a mar*et- et us consider te aret%or 2etrol in Sin+a'ore-

EB<LAIN clearl( ,eter tere is a c!an9e indeand i-e- it is a ri9!t'ardle%t'ard !i%t in t!edeand cur5e or tere is a c!an9e in 8uantit+deanded i-e- an6a u2'arddo'n'ardo5eent alon9 t!e deand cur5e-

4i5 An increase in te 'rice o$ cars-

Decreae in deandG le%t'ard !i%t o% t!e deand cur5e

Ste2 in anal+i:

♦ <etrol i a co2leent to car,

♦ -!en car &ecoe ore e2eni5e 8uantit+ deanded %or car 'ill %all andt!e deand %or 2etrol 'ill alo %all

♦ ince 2eo2le cut &ac on dri5in9,

4ii5 A success$ul ad/ertisin+ cam'ai+n launced )( 'etrol com'anies

Increae in deandG ri9!t'ard !i%t o% t!e deand cur5e

Ste2 in anal+i:

♦ Ad5ertiin9 in%luence tate and 2re%erence

♦ Succe%ul ad5ertiin9 increae conu2tion

In realit( it ta*es )ot % D S actin+ li*e a 2 )lades o$ a 'air o$ scissors to determine 'rices-oo*in+ at % 'er se ,itout S is li*e tr(in+ to use onl( 1 )lade to cut 'resents someconce'tual 'ro)lems- Ne/erteless $or learnin+ 'ur'oses ,e a/e to stud( % and Sse'aratel(-

4iii5 A rise in costs o$ crude oil 4 su''l( determinant5[Hint: A movement along the demand curve is due to changes in supply, i.e. shifts of the

supply curve.]

A %all in 8uantit+ deandedG u2'ard o5eent alon9 t!e ae deand cur5e






Ste2 in Anal+i:

♦

ot o% 2roduction increae (rude i t!e ain ra' aterial %or 2roducin92etrol

♦ Su22l+ cur5e decreae

♦ Dia9raaticall+ t!e e8uili&riu 2oint o5e u2 alon9 t!e ae deand

cur5e,

4i/5 A decrease in ta<es on 'etrol 4su''l( determinant5[Hint: A movement along the demand curve is due to changes in supply, i.e. shifts of thesupply curve.]

"uantit+ deanded increaeG do'n'ard o5eent alon9 t!e deand cur5e

Ste2 in anal+i:

♦ <etrol tae are conidered a 2art o% cot '!ic! eller 'ould norall+ 2a

on to conuer,

♦ Fall in tae 'ould i2l+ cot o% u22l+in9 decreae

♦ Su22l+ cur5e !i%t ri9!t'ard

♦ Dia9raaticall+ t!e e8uili&riu 2oint o5e do'n alon9 t!e ae deand

cur5e,

TUTORIAL #5 THEORY OF SUPPLY

Section A: Tutorial Foundation

1- Te ta)le )elo, +i/es te sort!run scedules o$ tree $irms > Y and ,iccom'rises an industr(-

<rice "uantit+ Su22lied

Fir B Fir Y Fir

1 100 ! !2 1F0 F0 !@ 200 0 0 2F0 1F0 100

F @00 200 1F0






Wic one o$ te 'rice!=uantit( com)inations ,ould occur in te sort run su''l( sceduleo$ te industr(?

units A 3 350 : @ "F0C 11F0% F 100

2- Wic one o$ te $ollo,in+ e/ents ,ould cause te su''l( o$ Good > to si$t to teri+t?

A. A decrease in te demand o$ a +ood in 7oint su''l( ,it Good >

B. An improvement in technology in prodcing Good X C- A decrease in te 'rice o$ Good >%- An increase in te cost o$ 'roduction

Section C: A22lication "uetion (6in

Maret For Cee%

An( anal(sis usin+ demand and su''l( conce'ts must

relate to a mar*et- et us consider te aret %or &ee% inSin+a'ore

EB<LAIN clearl( ,eter tere is a c!an9e in u22l+i-e- it is a ri9!t'ardle%t'ard !i%t in t!e u22l+ cur5e or tere is a c!an9e in 8uantit+ u22lied i-e- an6au2'arddo'n'ard o5eent alon9 t!e u22l+ cur5e-

(i) A +o/ernment su)sid( +ranted to te $armers rearin+ co,s in te area-

An increae in u22l+G ri9!t'ard !i%t o% u22l+ cur5e

Ste2 in anal+i:

♦ Su&id+ lo'er t!e cot o% u22l+in9 &ee%,

♦ Su22l+ cur5e !i%t ri9!t'ard

Interrelated Su22l+4ii5 A decrease in te 'rice o$ leater-[Hint: There are TWO possible ansers.!

An'er ($: Su22l+ 'ill %allG le%t'ard !i%t in u22l+ cur5e

Ste2 in anal+i:






♦ T!e decreae in 2rice o% leat!er i due to decreae in deand (e,9, 2eo2le

2re%er +nt!etic tu%% t!an leat!er

♦ T!u out2ut le5el %or leat!er %all♦ Su22l+ o% &ee% dro2 ince t!ee 9ood are in @oint u22l+,

An'er (3: Su22l+ 'ill increaeG ri9!t'ard !i%t in u22l+ cur5e

Ste2 in anal+i

♦ T!e decreae in 2rice o% leat!er i due to a rie in u22l+ o% leat!er (e,9

reduction in cot o% 2roduction a %ir relocate 2roduction to countrie 'it!lo'er la&our cot etc

♦ T!u out2ut le5el rie

♦ Su22l+ o% &ee% rie ince t!ee 9ood are in @oint u22l+,

4iii5 Tere are re'orts tat )ee$ is more nutritious tan oter meat-[Hint: A movement along the supply curve is due to changes in demand, i.e. shifts of thedemand curve.]

"uantit+ u22lied 'ill increaeG o5eent u2 alon9 t!e u22l+ cur5e

Ste2 in anal+i:

♦ Suc! 9ood re2ort 'ill caue ore 2eo2le to eat &ee% and t!u deand %or

&ee% 'ill increae, Reaon > c!an9e in tate2re%erence in %a5our o% eatin9

&ee%,♦ Deand cur5e !i%t ri9!t'ard,

♦ eteri 2ari&u t!ere 'ill &e a u2'ard o5eent alon9 t!e u22l+ cur5e,

4i/5 A ,orld,ide e'idemic li*e te Jad Co, disease-[Hint: "oth demand and supply ill be affected.!

Su22l+ 'ill %allG le%t'ard !i%t o% Su22l+ cur5e

Ste2 in anal+i:

♦ ullin9 o% co'♦ Le%t'ard !i%t o% SS cur5e due to u22l+ !oc,

Le%t'ard !i%t o% deand cur5e

Ste2 in anal+i

♦ Fear o% eatin9 &ee% (c!an9e in tate2re%erence a'a+ %ro conu2tion o%

&ee%

♦ Le%t'ard !i%t o% t!e deand cur5e,






Illutrate t!ee c!an9e 'it! a deand and u22l+ dia9ra,

Su22l+ %all %ro SS$ to SS3 and deand decreae %ro DD$ to DD3,

Final e8uili&riu i at 2oint ,


:1

C A :

DD2

DD1

Shift SS1

SS2Price

Quantity

econs topic 2 tut 4-5 ( answers)

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