Fall Term 2016
Yaşar University
Introduction to Economics I (Econ 101)
Answer key-Problem Sheet 3
The Market Forces of Supply and Demand
Market for Gum
100
Price
80
60
Quantity
demanded
40
Quantity
supplied
20
0
0
100
200
Quantity
a
Qeq= 120 Peq=50 Since Qd=Qs
b
At P=70 cent, Qd=80 Qs= 160 then, there exists excess supply=160-80= 80 mio packs of
unsold gum. Then to sell more gum, seller should decrease price until equilibrium price=50 cent
c
Shift in supply curve, since quantity supplied decreases 40 mio packs for every price
level
d
movement in demand curve
e
New equilibrium price= 60cents Equilibrium quantity= 100
New
quantity
Price of gum
Quantity demanded
Quantity supplied supplied
20
180
60
20
30
160
80
40
40
140
100
60
50
120
120
80
60
100
140
100
70
80
160
120
80
60
180
140
Market for Gum
100
Quantity
demanded
60
Quantity
supplied
P
80
"
40
New quantity
supplied
20
0
0
100
200
Q
2.
During the 1990s, technological advances reduced the cost of computer chips. How do you think
this affected the market for computers? For computer software? For typewriters?
Answer: Technological advances that reduce the cost of producing computer chips represent a
decline in an input price for producing a computer. The result is a shift to the right in the
supply of computers, as shown in Figure 3. The equilibrium price falls and the
equilibrium quantity rises, as the figure shows.
Figure 3
Since computer software is a complement to computers, the lower equilibrium price of
computers increases the demand for software. As Figure 4 shows, the result is a rise in
both the equilibrium price and quantity of software.
Figure 4
Since typewriters are substitutes for computers, the lower equilibrium price of computers
reduces the demand for typewriters. As Figure 5 shows, the result is a decline in both the
equilibrium price and quantity of typewriters.
Figure 5
3.
Ayşe’s income declines and, as a result, she buys more spaghetti. Is spaghetti an inferior or a
normal good for Ayşe ? What happens to Ayşe’s demand curve for spaghetti?
Answer: Since Ayşe buys more spaghetti when his income falls, spaghetti is an inferior good for
her. Since she buys more spaghetti, but the price of spaghetti is unchanged, her demand
curve for spaghetti shifts out as a result of the decrease in her income.
4.
Suppose that in the year 2005 the number of births is temporarily high. How does this baby boom
affect the price of baby-sitting services in 2010 and 2020?
(Hint: 5-year olds need baby-sitters, whereas 15-year-olds can be baby sitters)
Answer: A temporarily high birth rate in the year 2005 leads to opposite effects on the price of
babysitting services in the years 2010 and 2020. In the year 2010, there are more 5-year
olds who need sitters, so the demand for babysitting services rises, as shown in Figure 23.
The result is a higher price for babysitting services in 2010. However, in the year 2020,
the increased number of 15-year olds shifts the supply of babysitting services to the right,
as shown in Figure 24. The result is a decline in the price of babysitting services.
Figure 6
Figure 7