ECS2601
ASSIGNMENT 1
DUE DATE: 19 MARCH 2026
,ECS2601 ASSIGNMENT 1 2026
DUE 19 MARCH 2026
Question 1
1.1 In your own words, explain how you understand the working of
the market mechanism.
1.1 The working of the market mechanism
The market mechanism is the process by which the forces of supply and
demand interact to determine what goods are produced, how much is
produced, and at what price they are sold. Without any outside intervention
such as price controls, this interaction naturally moves towards an
equilibrium point where the quantity that producers are willing to supply
equals the quantity that consumers are willing to buy. At this point, the
market "clears," meaning there is no surplus (excess supply) or shortage
(excess demand) (Chapter 2, page 43).
1.2 Differentiate between any two of the following concepts:
, (a) Completeness and transitivity in relation to consumer choices
Completeness assumes that a consumer can always compare and rank any
two market baskets. For any two baskets, a consumer will either prefer
basket A to basket B, prefer basket B to basket A, or be indifferent between
the two. There is no "I can't decide" scenario (Chapter 3, page 92).
Transitivity assumes that a consumer's preferences are consistent. If a
consumer prefers basket A to basket B, and prefers basket B to basket C,
then they must also prefer basket A to basket C. This ensures a logical and
consistent ranking of all choices (Chapter 3, page 92).
(b) Inferior product versus a Giffen good
Inferior good is a good for which demand falls when consumer income rises
(and rises when income falls). The income elasticity of demand is negative.
An example would be a consumer buying less hamburger and more steak
as their income increases (Chapter 4, page 135).
Giffen good is a special (and rare) type of inferior good. It is a good whose
demand curve slopes upwards, meaning that as its price increases, the
quantity demanded also increases. This happens because the good is a
ASSIGNMENT 1
DUE DATE: 19 MARCH 2026
,ECS2601 ASSIGNMENT 1 2026
DUE 19 MARCH 2026
Question 1
1.1 In your own words, explain how you understand the working of
the market mechanism.
1.1 The working of the market mechanism
The market mechanism is the process by which the forces of supply and
demand interact to determine what goods are produced, how much is
produced, and at what price they are sold. Without any outside intervention
such as price controls, this interaction naturally moves towards an
equilibrium point where the quantity that producers are willing to supply
equals the quantity that consumers are willing to buy. At this point, the
market "clears," meaning there is no surplus (excess supply) or shortage
(excess demand) (Chapter 2, page 43).
1.2 Differentiate between any two of the following concepts:
, (a) Completeness and transitivity in relation to consumer choices
Completeness assumes that a consumer can always compare and rank any
two market baskets. For any two baskets, a consumer will either prefer
basket A to basket B, prefer basket B to basket A, or be indifferent between
the two. There is no "I can't decide" scenario (Chapter 3, page 92).
Transitivity assumes that a consumer's preferences are consistent. If a
consumer prefers basket A to basket B, and prefers basket B to basket C,
then they must also prefer basket A to basket C. This ensures a logical and
consistent ranking of all choices (Chapter 3, page 92).
(b) Inferior product versus a Giffen good
Inferior good is a good for which demand falls when consumer income rises
(and rises when income falls). The income elasticity of demand is negative.
An example would be a consumer buying less hamburger and more steak
as their income increases (Chapter 4, page 135).
Giffen good is a special (and rare) type of inferior good. It is a good whose
demand curve slopes upwards, meaning that as its price increases, the
quantity demanded also increases. This happens because the good is a
