How do the equilibrium price and the quantity of a commodity change when the price of input used in its production changes?
The change in the price of input price of input alters the cost of production of a commodity. Let us analyze the two different cases.
1. Increase in input price If the input price of a firm increases, the cost of production will also increase which will discourage the firm’s incentive to produce and supply the commodity. This will lead to a left upward shift of the marginal cost curve which further will lead to a leftward parallel shift of an individual firms supply curve and finally a leftward shift of the market supply curve. The demand curve remaining the same, the new equilibrium will occur at E2 with higher equilibrium price (P2) and lower quantity of output (q2).
2. Decrease in input price If an input price of a firm decreases, then the cost of production will also decrease. This will shift the marginal cost curve rightward, which implies that the firms supply curve will also shift rightward. Consequently, the market supply curve will shift rightward parallelly from S1S1 to S2S2. Demand curve remaining the same, the new equilibrium will occur at E2 with lower equilibrium price (P2) and higher quantity level of output (q2).
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.
When do we say that there is an excess demand for a commodity in the market?
When do we say that there is an excess supply 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?
Explain through a diagram the effect of a rightward shift of both the demand and supply curves on equilibrium price and quantity.
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?
Explain how price is determined in a perfectly competitive market with a fixed number of firms.
Explain market equilibrium.
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?
What do the long-run marginal cost and the average cost curves look like?
Briefly explain the concept of the cost function.
What is the ‘price line’?
A consumer wants to consume two goods. The prices of the two goods are Rs 4
and Rs 5 respectively. The consumer’s income is Rs 20.
(i) Write down the equation of the budget line.
(ii) How much of good 1 can the consumer consume if she spends her entire
income on that good?
(iii) How much of good 2 can she consume if she spends her entire income on
that good?
(iv) What is the slope of the budget line?
Questions 5, 6 and 7 are related to question 4.
Explain the concept of a production function
Suppose your friend is indifferent to the bundles (5, 6) and (6, 6). Are the preferences of your friend monotonic?
Will the monopolist firm continue to produce in the short run if a loss is incurred at the best short run level of output?
The following table gives the total product schedule of labour. Find the corresponding average product and marginal product schedules of labour.
What do you mean by ‘monotonic preferences’?
The market demand curve for a commodity and the total cost for a monopoly firm producing the commodity are given in the schedules below.
Quantity |
0 |
1 |
2 |
3 |
4 |
5 |
6 |
7 |
8 |
Price |
52 |
44 |
37 |
31 |
26 |
22 |
19 |
16 |
13 |
Quantity |
0 |
1 |
2 |
3 |
4 |
5 |
6 |
7 |
8 |
Price |
10 |
60 |
90 |
100 |
102 |
105 |
109 |
115 |
125 |
Use the information given to calculate the following:
(a) The MIR and MC schedules
(b) The quantities for which MIR and MC are equal
(c) The equilibrium quantity of output and the equilibrium price of the commodity
(d) The total revenue, total cost and total profit in the equilibrium