Final Exam Answer
COURSE : ECONOMICS
EXAMINATION : APRIL 2011
QUESTION 1 A) What is market equilibrium? With the aid of a diagram, explain how it is determined? (4marks)
Answer:
Market equilibrium is a situation in which the supply curve of an item is exactly equal to its demand curve. Since there is neither surplus nor shortage in the market, price tends to remain stable in this situation.
Price
D S
E
P
S D
0 Q Quantity Base on figure, the market equilibrium is labeled as point E. At this point, the market equilibrium price (P) and equilibrium quantity (Q) is determined. The consumer and seller are willing to buy and sell the good at the same price and quantity. At this point, the amount that the buyer want to buy is equal to the amount that seller want to sell. When the market is in equilibrium, the forces of demand and supply are in balance, so there is no tendency for the price rise or fall, assuming all other things remind unchanged.
B) With the aid of a diagram, show the effect of an increase in demand for chicken in the domestic market. (4marks)
Answer
Price
D1 S D P1 E1 P E D1 S D 0 Q Q1 Quantity
Base on the figure, the effect of an increase in demand for chicken in the domestic market are: 1. Suppose demand increases due to an increase in income, the demand curve shifts from DD to D1D1 2. Both equilibrium price and quantity will increase from P to P1 and Q to Q1 units. 3. The rise in price will result o movement along the supply curve (SS) and the original equilibrium at point E changes to a new one at E1.
C) Explain three (3) factors that may influence the supply of chicken in the domestic market. (6marks)
Answer: 1. Price: The price of a product is one of the major factors that influence its supply in the market. There is a direct
EXAMINATION : APRIL 2011
QUESTION 1 A) What is market equilibrium? With the aid of a diagram, explain how it is determined? (4marks)
Answer:
Market equilibrium is a situation in which the supply curve of an item is exactly equal to its demand curve. Since there is neither surplus nor shortage in the market, price tends to remain stable in this situation.
Price
D S
E
P
S D
0 Q Quantity Base on figure, the market equilibrium is labeled as point E. At this point, the market equilibrium price (P) and equilibrium quantity (Q) is determined. The consumer and seller are willing to buy and sell the good at the same price and quantity. At this point, the amount that the buyer want to buy is equal to the amount that seller want to sell. When the market is in equilibrium, the forces of demand and supply are in balance, so there is no tendency for the price rise or fall, assuming all other things remind unchanged.
B) With the aid of a diagram, show the effect of an increase in demand for chicken in the domestic market. (4marks)
Answer
Price
D1 S D P1 E1 P E D1 S D 0 Q Q1 Quantity
Base on the figure, the effect of an increase in demand for chicken in the domestic market are: 1. Suppose demand increases due to an increase in income, the demand curve shifts from DD to D1D1 2. Both equilibrium price and quantity will increase from P to P1 and Q to Q1 units. 3. The rise in price will result o movement along the supply curve (SS) and the original equilibrium at point E changes to a new one at E1.
C) Explain three (3) factors that may influence the supply of chicken in the domestic market. (6marks)
Answer: 1. Price: The price of a product is one of the major factors that influence its supply in the market. There is a direct