# Principles of Macroeconomics

Topics: Costs, Variable cost, Supply and demand Pages: 8 (805 words) Published: April 29, 2015
﻿Principles of Macroeconomics
Coursework

Rodoula Makri
ECON101-EN

Question 1:

a) Price of substitute good falls

- As seen on the diagram above when price of substitute product A rise, then demand for substitute product B rises accordingly. Positive relationship between the two. Shift to the right.

b) Taste shifts away from the good

- Whe the taste shifts away from the good it becomes less desirable, making its demand for it decrease. Shift to the left.

c) Price of complimentary good falls

- When the price of a complementary good falls that demand for the product as well as its complementary go up. Shift to the right.

d) Good become more expensive

- When a good becomes more expensive then the demand for it will decrease. Shift to the left.

Question 2:

a) Cost of production for a good falls

- When the cost of production become cheaper then supply goes up. Shift to the right.

b) Alliterative products become more profitable

- When alternative products become more profitable then suppliers stop using the less profitable products. Shift to the left.

c) Price of good rises

- When the price of a good rises the supply rises with it. Shift to the right.

d) Firms anticipate that the price of a good will fall

- If firms anticipate the price of a product will fall in the near future, they may choose to supply more of the product now.

Question 3:

- There will be a decrease in quantity demanded.

b) Discovery of a new cheaper way of milling flour

--the new discovery of a new cheaper way of milling flour may encourage new suppliers to mill flour or it may encourage existing suppliers to mill more flour. All in all there’s an increase in supply.

c) Price of other grains of rise

- Others grains of rise work as substitute goods so if there price goes up then demand for them will decrease, and if their price falls the demand for them will increase.

Question 4:

a) Equilibrium price is \$280

b) For the price that the ceiling is set at there is more demand than there is at the equilibrium price. There is also less supply than there is at the equilibrium price. Therefore we have a shortage.

c) New figures
Price per tonne
120
160
200
240
280
320
360
400
Tonnes demanded per week
750
700
675
650
600
550
500
425
Tonnes supplied (old)
225
300
400
500
600
750
1000
1300
Tonnes supplied (new)
375
450
550
650
750
900
1150
1450

d) New equilibrium \$240. There will be 50 more tonnes sold.

Question 5:

a) Petrol (all brands), Esso petrol

- Both are inelastic. Petrol is a necessity in our life so if the prices rices the quantity doesn't go down much.

- Holidays abroad have more elastic demand than bread. Bread is used on a daily basis so if the price rises, quantity goes down by a little. With holiday abroad on the other hand the price and demand for it change bast on the seasons.

c) Salt, clothing

Clothing Salt

- Clothing have more elastic demand than Salt. Salt is used on a daily basis so if the price rises, quantity goes down by a little. With Clothing on the other hand the price and demand for it change bast on the seasons, as well as our wages.

Question 6:

output
T.C (\$)
A.C
0
40
-
1
70
70
2
90
45
3
120
40

a) Fixed cost - A cost that does not change with an increase or decrease in the amount of goods or services produced. Fixed costs are expenses that have to be paid by a company.

T.C = F.C + V.C => 20+20 = 40
-> F.C of output 0 = 20
-> F.C of output 3 = 20

b) Average Fixed Cost - Average fixed cost is the total fixed cost per unit of output incurred when a firm engages in short-run production. ...