How will a change in the price of coffee affect the equilibrium price of tea? Explain the effect on equilibrium quantity also through a diagram.
Coffee and tea are substitute goods, i.e. they are used in the place of each other. An increase or a decrease in the price of coffee will lead to an increase or a decrease in the demand for tea respectively. The figure depicts the equilibrium of the tea market. The initial demand and supply of tea is depicted by D1D1 and S1S1 respectively. The initial equilibrium is at E1 with the equilibrium price (pe) and equilibrium quantity (qe). Now the price of coffee increases, which will lead to an increase in the demand of tea (being a substitute good), the demand curve of tea will shift rightward parallelly. At the equilibrium price (Pe), there will be an excess demand for tea, consequently, the price of tea will rise. This will form the new equilibrium at E2 with the new equilibrium price P2 and the new equilibrium output q2. Hence, an increase in the price of coffee will lead the equilibrium price of tea to rise (due to excees demand). Further the increase in the price of coffe will also lead to the increase in demand for tea as tea is the substitute good and coffee. Now, if the price of coffee decreases, there will be a decreases in the demand for tea. The demand curve for tea will shift leftward parallelly to D2D2. At the equilibrium price (Pe) there will be an excees supply. Consequently, the price of tea will fall, which will form the new equilibrium at E2 with new equilibrium price P2 and the new equilibrium output q2. Hence a decrease in the price of coffee will lead to a decrease in the price of tea and a decrease in the demand for tea as people will switch over to consumption of coffee.
When do we say that there is an excess demand for a commodity in the market?
Suppose the price at which the equilibrium is attained in exercise 5 is above the minimum average cost of the firms constituting the market. Now if we allow for free entry and exit of firms, how will the market price adjust to it?
Suppose the market determined rent for apartments is too high for common people to afford. If the government comes forward to help those seeking apartments on rent by imposing control on rent, what impact will it have on the market for apartments?
When do we say that there is an excess supply for a commodity in the market?
Explain through a diagram the effect of a rightward shift of both the demand and supply curves on equilibrium price and quantity.
How are equilibrium price and quantity affected when income of the consumers
a) Increase
b) Decrease
Explain market equilibrium.
Explain how price is determined in a perfectly competitive market with a fixed number of firms.
In what respect do the supply and demand curves in the labor market differ from those in the goods market?
Suppose the demand and supply curves of salt are given by:
(a) Find the equilibrium price and quantity.
(b) Now, suppose that the price of an input that used to produce salt has increased so, that the new supply curve is qs = 400 + 3p
How does the equilibrium price and quantity change? Does the change conform to your expectation?
(a) Suppose the government has imposed at ax of Rs 3 per unit of sale on salt. How does it affect the equilibrium rice quantity?
Explain the concept of a production function
What would be the shape of the demand curve so that the total revenue curve is?
(a) A positively sloped straight line passing through the origin?
(b) A horizontal line?
Discuss the central problems of an economy.
What are the characteristics of a perfectly competitive market?
What do you mean by the budget set of a consumer?
What is the total product of input?
From the schedule provided below calculate the total revenue, demand curve and the price elasticity of demand:
Quantity |
1 |
2 |
3 |
4 |
5 |
6 |
7 |
8 |
9 |
Marginal Revenue |
10 |
6 |
2 |
2 |
2 |
0 |
0 |
0 |
- |
What do you mean by the production possibilities of an economy?
How are the total revenue of a firm, market price, and the quantity sold by the firm related to each other?
What is budget line?
When does a production function satisfy constant returns to scale?
How does the budget line change if the price of good 2 decreases by a rupee
but the price of good 1 and the consumer’s income remain unchanged?
How does the imposition of a unit tax affect the supply curve of a firm?
Find out the maximum possible output for a firm with zero units of L and 10 units of K when its production function is Q = 5L = 2K.
What do you mean by a normal good?
Briefly explain the concept of the cost function.
Suppose a consumer’s preferences are monotonic. What can you say about her preference ranking over the bundles (10, 10), (10, 9) and (9, 9)?
Let the production function of a firm be Q=2 L2 K2Q=2 L2 K2
Find out the maximum possible output that the firm can produce with 5 units of LL and 2 units of KK. What is the maximum possible output that the firm can produce with zero units of LL and 10 units of KK?
Can there be a positive level of output that a profit-maximising firm produces in a competitive market at which market price is not equal to marginal cost? Give an explanation.
The following table shows the total cost schedule of a firm. What is the total fixed cost schedule of this firm? Calculate the TVC, AFC, AVC, SAC and SMC schedules of the firm.