Course Name: Introduction To Economics
Course Code: ECO101
Important Questions From The Topic ‘’Demand, Supply And Equilibrium Analysis”
Questions
Asif and Aasia each have "monthly" demand schedules for potatoes. Let's depict these
schedules on a shared graph. Assuming a total of 200 consumers in the market, with 100
following Asif's schedule and 100 following Aasia's, let's calculate the Total market
demand ("monthly") in the table below.
Price Asif Aasia Total
market
deman
d
(pence (Qd in (Qd in (kg)
per kg) kg) kg)
20 28 16 4400
40 15 11 2600
60 5 9 1400
80 1 7 800
100 0 6 600
Assuming that demand does not change from month to month, how would you plot the
annual market demand for potatoes?
The amount demanded would be 12 times higher at each price. If the scale of the horizontal
axis were unaltered, the curve would shift way out to the right. A simple way of showing the
new curve, therefore, would be to compress the scale of the horizontal axis. (If each of the
, numbers on the axis were multiplied by 12, the curve would remain in physically the same
position.)
At what price is their demand the same?
The two curves cross at a price of Rs50 per kg and at a demand of 10 kg per month.
What explanations could there be for the quite different shapes of their two demand
curves?
One explanation could be that Asif is quite happy to eat rice, pasta or bread instead of
potatoes. Thus, when the price of potatoes goes up, she switches to these other foods, and
switches to potatoes when the price of potatoes comes down. Aasia, by contrast, may not see
these other foods as close substitutes and thus her demand for potatoes will be less price
sensitive.
Do all these determinants of demand affect both an individual’s demand and the market
demand for a product?
All except the distribution of income in the economy.
You are given a market demand curve for apples. Assume that the price of apples
increases by 20 per cent at each price – due, say, to substantial increases in the prices
of other substitute fruits. Plot the new demand curve for apples. Is the new curve
parallel to the old one?
See below. As you can see, the curves are not parallel. A constant percentage increase in
quantity demanded gives a bigger and bigger absolute increase as quantity increases.
The price of lamb meat rises and yet it is observed that the sales of lamb meat increase.
Does this mean that the demand curve for lamb meat is upward sloping? Explain.
Not necessarily so. For instance, if the prices of substitutes like beef or chicken have increased
by a greater margin, the demand curve for lamb meat might have shifted rightward.
Consequently, despite a surge in the price of lamb meat leading to an upward movement along
this adjusted demand curve, the overall demand for lamb meat could still rise. This is because
lamb meat, in this scenario, becomes relatively more affordable compared to the alternatives.
Course Code: ECO101
Important Questions From The Topic ‘’Demand, Supply And Equilibrium Analysis”
Questions
Asif and Aasia each have "monthly" demand schedules for potatoes. Let's depict these
schedules on a shared graph. Assuming a total of 200 consumers in the market, with 100
following Asif's schedule and 100 following Aasia's, let's calculate the Total market
demand ("monthly") in the table below.
Price Asif Aasia Total
market
deman
d
(pence (Qd in (Qd in (kg)
per kg) kg) kg)
20 28 16 4400
40 15 11 2600
60 5 9 1400
80 1 7 800
100 0 6 600
Assuming that demand does not change from month to month, how would you plot the
annual market demand for potatoes?
The amount demanded would be 12 times higher at each price. If the scale of the horizontal
axis were unaltered, the curve would shift way out to the right. A simple way of showing the
new curve, therefore, would be to compress the scale of the horizontal axis. (If each of the
, numbers on the axis were multiplied by 12, the curve would remain in physically the same
position.)
At what price is their demand the same?
The two curves cross at a price of Rs50 per kg and at a demand of 10 kg per month.
What explanations could there be for the quite different shapes of their two demand
curves?
One explanation could be that Asif is quite happy to eat rice, pasta or bread instead of
potatoes. Thus, when the price of potatoes goes up, she switches to these other foods, and
switches to potatoes when the price of potatoes comes down. Aasia, by contrast, may not see
these other foods as close substitutes and thus her demand for potatoes will be less price
sensitive.
Do all these determinants of demand affect both an individual’s demand and the market
demand for a product?
All except the distribution of income in the economy.
You are given a market demand curve for apples. Assume that the price of apples
increases by 20 per cent at each price – due, say, to substantial increases in the prices
of other substitute fruits. Plot the new demand curve for apples. Is the new curve
parallel to the old one?
See below. As you can see, the curves are not parallel. A constant percentage increase in
quantity demanded gives a bigger and bigger absolute increase as quantity increases.
The price of lamb meat rises and yet it is observed that the sales of lamb meat increase.
Does this mean that the demand curve for lamb meat is upward sloping? Explain.
Not necessarily so. For instance, if the prices of substitutes like beef or chicken have increased
by a greater margin, the demand curve for lamb meat might have shifted rightward.
Consequently, despite a surge in the price of lamb meat leading to an upward movement along
this adjusted demand curve, the overall demand for lamb meat could still rise. This is because
lamb meat, in this scenario, becomes relatively more affordable compared to the alternatives.
