ECON111
Tutorial 3, Week 4
Question 1
• Think about the demand for the three popular
game consoles: XBox, PS3, and Wii.
• What is the effect on the demand for XBox
games and the quantity of XBox games
demanded if, other things remaining the
same.
• Use supply and demand diagrams to illustrate
your answers.
What is the effect on the demand for XBox games
and the quantity of XBox games demanded
a. The price of an XBox falls?
b. The prices of a PS3 and a Wii fall?
c. The number of people writing and producing
XBox games increases?
d. Consumers’ incomes increase?
e. Programmers who write code for XBox games
become more costly to hire?
f. The price of an XBox game is expected to fall?
Question 2
• Assuming that rice and noodles are
substitutes, outline the effect of the following
on the equilibrium price and quantity of rice:
(i) an improvement in the technology for making
noodles results in a fall in the price of noodles, AND
(ii) the wage rate paid to workers involved in growing
rice increases.
• Use diagrams to illustrate your answer..
(i)
• Since rice and noodles
are substitutes, a fall in
the price of noodles
increases the quantity
demanded of noodles
and decreases the
demand for rice.
• The demand curve for
rice shifts leftward.
• By itself, the price of
rice would fall and the
quantity bought would
decrease.
(ii)
• The rise in the wage rate
paid to rice workers raises
the cost of producing rice.
• The supply of rice
decreases.
• By itself, the price of rice
would rise and the
quantity bought would
decrease.
• Together, the fall in the price of noodles and
the rise in the wage rate paid to rice workers
decrease the equilibrium quantity of rice.
• But the equilibrium price might
– rise,
– fall or
– not change
• depending on the relative magnitudes of the
shifts in the demand and supply curves.
• Summary
• In the rice market:
• P of Noodles decreases  Demand for rice decreases
Demand for rice shifts leftward
• Wage of rice workers increase  Supply of rice decreases
Supply of rice shifts leftward
• The equilibrium quantity of rice decreases
• But, the equilibrium price might rise, fall, or not change
• If …. then …..
Question 3
• The figure below illustrates the
market for pizza.
a. Which curve shows the
willingness to pay for a
pizza?
b. If the price of a pizza is
$16, is there a shortage or a
surplus and does the price
rise or fall?
c. Sellers want to receive the
highest possible price, so
why would they be willing to
accept less than $16 a pizza?
• The figure below illustrates
the market for pizza.
d. If the price of a pizza is
$12, is there a shortage or
a surplus and does the
price rise or fall?
e. Buyers want to pay the
lowest possible price, so
why would they be willing
to pay more than $12 for a
pizza?
• The demand and supply
equations for this pizza
market are as follows
• Use these equations to
find the equilibrium
price and quantity.
• Find equilibrium quantity by using either
demand or supply equation since in
equilibrium demand = supply.