Economics Solutions

Questions: a) Explain the difference between a change in demand and a change in quantity demanded using a graph. b) Discuss the factors affecting to quantity supplies and supply of a product. Answers: (a) A change in quantity demanded of a commodity is represented by a movement along the demand curve as price falls or increases. On the other hand a change in demand represents a demand curve shift due changes in other factors affecting the demand in the market. Fig 1 shows a change in quantity demanded whereas Fig 2 shows a change in demand by the shift of the demand curve upwards if the demand increases and downwards if demand falls. (b) The changes in Price of a product changes the quantity supplied. If the price of a good rises then the quantity supplied of the good also rises, whereas if the price of the good falls the quantity supplied falls. There are many other factors that affect the supply of a commodity in the market and cause shifts in the supply curve. Some of these factors are: 1. Input prices: To produce a commodity a range of inputs are needed. If input price increases, then the cost of producing the good increases which makes producers to produce less of that good and the supply of the good falls. 2. Technology: The technology used in converting the inputs into the final commodity also affects the supply. Advanced technology reduces the costs of firms, hence inducing them to increase supply 3. Expectations: Expectations of changes in price in future also determines how much of the output would be supplied in the present time. If the firms or producers keep expectations that the price of a commodity will increase in future, they would siphon off some of the commodities in storage to supply in future and this will reduce the amount supplied today. 4. Number of Sellers: The higher the number of sellers in the market the greater is the quantity supplied and vice versa. References: Pindyck, R, Rubinfeld, D Mehta, P 2009, Microeconomics, Pearson, South Asia Varian, H 2010, Intermediate microeconomics, Affiliated East-West Press, New Delhi Samuelson, P Nordhaus, W 2010, Economics, Tata McGraw Hill, New Delhi Mankiw, G 2007, Economics: principles and applications, Cengage Learning, New Delhi Sen, A 2007, Microeconomics, Oxford, New Delhi Lipsey, R Chrystal, A 2011, Economics, Oxford, New Delhi Sowell, T 2010, Basic economics, Basic books, USA Hall, R Lieberman, M 2010, Economics: Principles and applications, Cengage learning, USA Sikdar,S 2006, Principles of Macroeconomics,New Delhi, Oxford. Mankiw, G 2003, Macroeconomics, USA, Worth Publishers.