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Answer-1
Diagram
Computer
First of all, the reduction in the cost of computer chips leads to a reduction in thecost of computers since
the chip is an important part of a computer. The reductionin cost raises the quantities of computers. As
the supplies increased, the Supplycurve is shifted to the right, which means there is a fall in the
equilibrium price andthere is a rise in the equilibrium quantities.
Typewriter
In the case of the typewriter, it is considered as the computer substitutes. Thedecline in the price of the
computer, indeed, lower the demand for typewriters.This means there are declines in the
equilibrium price and quantities of thisproduct.
Answer 2
In this case, NOTHING is gonna happen to supply, demand, quantity supplied,quantity demanded and
the price in the market for PIES because pie and mobilephone are neither substitutes nor
complements.However, in the case of headphones and mobile phones, since these two
arecomplements, the increase in one’s price will lead to a decline in demand of theother.
Diagram
The quantities demanded decline
The market price of headphones fall
Answer 3
The statement is FALSE
Since petrol used cars and electric cars are substitutes, the increase in the price ofelectric cars will lead
to an increase in demand for petrol used cars. Thus, this willlead to a rise in the equilibrium price of cars
using petrol.
Answer 4
The best answer is d
Diagram
In the case of normal goods, the rise in average incomes will lead to a higherdemand which shifts the
demand curve to the right. Thus, market prices andquantities rise.
Diagram
In the case of inferior goods, the rise in average incomes will lead to a lowerdemand which shifts the
demand curve to the left. Thus, market prices andquantities decrease
Answer 5
a. Tortilla chips and salsaThey are eaten together, therefore, tortilla chips and salsa are complements. As
aresult, when the price of one of them rise, the demand for it will decrease and thequantities demanded
of the other is also lower.
b. Tortilla chips and potato chipsThe customer is likely to use one of them at a time since they are both
chips. Inother words, they are substitutes. As a result, when the price of tortilla chips rise,the demand
for it will decrease, the quantities demanded of potato chips will riseand vice versa.
c. Movie ticket and gourmet coffeeMovie and coffee are two separate leisure activities. Since
the entertainmentbudget is fixed, the customer is gonna choose one of them at a time. In otherwords,
they are substitutes. As a result, when the movie ticket becomes moreexpensive, the demand for
it will decrease and the demand for gourmet coffee willincrease as a replacement. We also have vice
versa.
d. Travel by bus and travel by subwayIn this case, it can’t be clearly said that bus and
subway are substitutes orcomplements. If the customer can travel by either bus or subway any time,
they aresubstitutes. However, is he must take a rout with both bus and subway to the office or other
places compulsorily, then they are complements.If bus services and subway services are
substitutes, when bus price rise, thedemand for it will decrease. This leads to an increase in the
demanded quantity ofsubway as a replacement. Vice versa. If bus services and subway services are
complements, when bus price rise, thedemand for it will decrease. This leads to a decrease in the
demanded quantity ofsubway. In this case, the customer may think about other replacements such
asdriving himself or reducing unnecessary travels.
Answer 6
6) (KEY QUESTION) Consider the market for station wagons. For each ofthe events listed below,
identify which of the determinants of demand orsupply are affected. Also indicate whether
demand or supply is increased ordecreased. e. People decide to have more children.When people
decide to have more children, they may consider buying family carswhich station wagon is a good
choice. This leads to an increase in demand forstation wagons. As a fact, price and quantity rise. f. The
price of mini-vans rises.Mini-vans can be considered as station wagons' substitutes. In this case, the
priceof mini-vans rises leads to a decrease in demand for them. Thus, the demand forthe wagon as a
replacement increase. Indeed, price and quantity rise.g. A strike by steelworkers raises steel prices. Steel
is the fundamental material for manufacturing wagons. Thus, as steel pricesincrease, the supply of
wagons decreases. Therefore, the price rises and thequantity declines. h. Engineers develop new
automated machinery for the production of stationwagons. New technology development in the
production of station wagons shifts the supplycurve to the right. In other words, the supply increases.
This leads to a rise inquantity and a decline in price. i. A stock market crash lowers people's wealth.
Station wagons are normal goods. Therefore, when the average incomes decline,the demand for
wagons declines, too. This result in the decline in price andquantity as well.
In those cases, the change in equilibrium quantity is always less than the initialschange in supply or
demand. Because:When demand is higher, three movements are occurring simultaneously: Movement
1: The demand curve shifted to the right or E1 became X whichrepresents the higher quantity
sold. This leads to a shortage. Thus, the shortagebids up the price. Movement 2: The price is higher lead
to the movement along the demand curvefrom X to E2. This represents a higher price in every
quantity.Movement 3: Since the quantity demanded is much higher than the
quantitysupplied (Qx > Q1), they meet up at Q2. In other words, there is a movement alongthe supply
demand curve from E1 to E2. This represents the rise in supply to adaptto the shortage. E1 and E2 are
also the first and the new market equilibrium.The change in the equilibrium quantities is represented by
Q1Q2. Meanwhile, thechange in supply can be represented by E1E2. As we can see, Q1Q2 is the shadow
of E1E2 in the quantity axis. Indeed Q1Q2 isalways smaller than E1E2. In other words, the change in
equilibrium quantity isalways less than the initials change in supply.The same happens when the supply
changes and the demand remains.
People want to have more children leads to an increase in demand for stationwagons.
Meanwhile,
steel prices increase lead to the fact that the supply ofwagons
decreases.As demand increase and supply decrease, the price definitely increases. However,there
is not enough information to conclude that quantity increase, decrease orremain unchanged