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Topics: Supply and demand, Price elasticity of demand, Elasticity Pages: 6 (2035 words) Published: April 20, 2013
Yiheli Tesfu|
Homework I|
ECON 545: Business Economics|
Sir, Edward Melton |
Jan. 5, 2013|

Using the figures above, answer the following questions:
a. On the Demand panel:
■ Show an increase in demand and label it D1.
■ Show a decrease in demand and label it D2.
■ Show an increase in quantity demanded.
■ Show a decrease in quantity demanded.
■ What causes demand to change?
Answer: Changes in demand comes from various factors. Changes in consumer preferences will change demand. Consumer preferences can be changed through advertising, variations in the price or availability of related products and customers’ incomes. (Stone 58) ■ What causes quantity demanded to change?

Answer: Whereas a change in demand can be brought about by many different factors, a change in quantity demanded can be caused by only one thing: a change in product price. (Stone 59) b. On the Supply panel:

■ Show an increase in supply and label it S1.
■ Show a decrease in supply and label it S2.
■ Show an increase in quantity supplied.
■ Show a decrease in quantity supplied.
■ What causes supply to change?
Answer: A change in supply results from a change in one or more of the determinants of supply; such as advancing technology has made it cheaper to produce products or cheaper labor availability, means that more of the commodity will be offered for sale at every price. (Stone 63) ■ What causes quantity supplied to change?

Answer: Only a change in the price of a product can cause a change in the quantity supplied. (Stone 63) 11. In December of 2005, the Wall Street Journal reported that Clark Foam, a major supplier of polyurethane cores (blanks) for hand-shaped surfboards, closed its plant and went out of business (Peter Sanders and Stephanie Kang, “Wipeout for Key Player in Surfboard Industry,” The Wall Street Journal, December 8, 2005, p. B1). Clark Foam was the Microsoft of surfboard blank makers, and had been supplying foam blanks to surf shops for over 50 years. Polyurethane blanks, while light and sturdy, contain a toxic chemical, toluene diisocyanate (TDI). Over the last two decades the Environmental Protection Agency has increasingly been restricting the use of TDI. Clark Foam’s owner Gordon “Grubby” Clark indicated in a letter to customers that he was tired of fighting environmental regulators, lawsuits over injury to employees, and fire regulations. Surf historian and author of The Encyclopedia of Surfing, Matt Warshaw said, “It’s the equivalent of removing lumber for the housing industry.” a. If you owned a retail surfboard shop and read this article in the Wall Street Journal, would you change the prices on the existing surfboards you have in the shop? Why or why not? Answer: There is a possibility of great shifts on the demand curve towards a higher global demand prompted by the possible shutdown of the product. When this occurs there will be a predicted deficit in supply and this makes people or customers to pay more the Styrofoam surfboards. Therefore, I would change the price of the existing surfboards. b. If the demand for surfboards remains constant over the next few years, what would you expect to see happen on the supply side in this industry? Answer: This means that the supply has been met, creating market equilibrium. When supply and demand are equal the economy is said to be at equilibrium. At this point, the allocation of goods is at its most efficient because the amount of goods being supplied is exactly the same as the amount of goods being demanded. Thus, everyone is satisfied with the current economic condition. At the given price, suppliers are selling all the goods that they have produced and consumers are getting all the goods that they are demanding. 12. Polysilicon is used to produce computer chips and solar photovoltaics. Currently more polysilicon is used to produce computer chips, but the demand for ultra- pure polysilicon for solar panels...
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