ECS1501 ASSIGNMENT 3 SEMESTER 1 2023

PREVIEW OF QUESTION 1 1. 1 Reference: Prescribed book PG 189 The opposite occurs when the price of a product is set at too low a level. In this situation, buyers will demand a higher quantity than suppliers are willing to or plan to supply. Excess demand or a shortage will thus be created in the market. Reference: Prescribed book PG 189 The opposite occurs when the price of a product is set at too low a level. In this situation, buyers will demand a higher quantity than suppliers are willing to or plan to supply. Excess demand or a shortage will thus be created in the market. 2. 3 price no longer serves as a rationing mechanism. 3. 1 Price Ceiling  Maximum price that may be charged for a good, product or service.  Governments often set maximum prices with the intention to protect consumers against exploitation, however it usually leads to cases where the maximum price is lower than the equilibrium price (market clearing price). 4. 2 Quantity and price will decrease from the equilibrium market level 5. 3 Price elasticity of demand = 10/10 = 1 This is called unitary elasticity 6. 1 A 12% decrease in price will lead to 12 * 3 = 36% change in quantity 7. 4 Change in price =(5 – 4)/(1/2 * 9) = 22.22% Change in quantity = (20 -40)/(1/2*60) = -66.67 Price elasticity of demand = -66.67/22.22 = 3 8. 4 When a change in price leads to a change in quantity, but the change in price is greater than the percentage change in quantity Producers will have an incentive to change the price since the percentage change in price will be greater than the percentage change in the quantity sold If the price of the product decreases, the producers TR will increase 9. 2 Income elasticity of demand measures the responsiveness of the quantity demanded to changes in income Determine how the quantity demanded for a product changes when the income of consumers changes