Demand and Supply in Economics

Putra Business School, Universiti Putra Malaysia

GSM5000 MANAGERIAL ECONOMICS

ASSIGNMENT 1

Tuan Azuaniezam Tuan Azman GM05013

Tuan Azuaniezam Tuan Azman GM05013

Question 1 a) Price of grain that is fed to hens falls

Eggs’ price (RM)

D0

S1

S2

P1 P2

Q1

Q2

Quantity of eggs (Q)

b) Released of new study that indicates eating eggs is hazardous to one’s health.

Eggs’ price (RM)

D2

D1

S0

P1 P2

Q2

Q1

Quantity of eggs (Q)

c) The number of egg producing farms falls

Eggs’ price (RM)

D0

S2

S1

P2 P1

Q2

Q1

Quantity of eggs (Q)

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Tuan Azuaniezam Tuan Azman GM05013

d) This weekend is a festival holiday

Eggs’ price (RM)

D1

D2

S0

P2 P1

Q1 Q2

Quantity of eggs (Q)

Question 2 Technological advances have reduced the cost of computer chip thus impacted various segment of computer market. Computer price sold to customer has reduced due to cheaper production and supplier will offer the computer at lower price. Everyone can afford to have personal computer at home. With the computer price reduced, more customers will buy computer and demand for computer will increase. As for computer software, with more consumer use the computer, computer software demand will increase as people will acquire more computer software to be installed in the computer. Consumer will search more computer software as they can utilize the functionality of the computer. This relationship between computer and computer software is called complementary product. However, for the market of typewriter, increase in computer demand will decrease demand of typewriter. This is because typewriter is substitute product for computer. If demand of computer increase, demand for typewriter will decrease. Question 3 a) Price elasticity of demand = Δ% in quantity demanded Δ % in price Current price = $2 Elasticity = 0.4 0.4 ∆% = 50% 50% increase of cigarettes price from $2 to $3. 20% ∆% 20% 40%

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Tuan Azuaniezam Tuan Azman GM05013

b) Certainly the increase will not affect smokers for...