ECON 212 Quiz: ECON 212quizQuiz1B

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31 Jan 2019

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Question 1: [6 marks] consider a market for computers. The demand curve in the market is given by the equation qd=40-4p where p is the price of a computer. Supply in the market is described by the supply curve qs=4p: [2 marks] calculate the equilibrium price and quantity in the market, and draw it on a graph. Answer: set qd=qs to get equilibrium price of p=5. Sub p=5 into one of the demand equations to get q=20: [2 marks] calculate the elasticity of demand at the equilibrium price and quantity. Answer: elasticity of demand = -dqd/dp(p/q)=4(5/20)=1: [2 marks] now suppose a new design for microprocessors is invented, making it cheaper to produce a computer. Whereas prior to the invention a rm was willing to supply 4 computers per dollar of price, now they can afford to supply 6. Draw it on your graph above, and denote the new equilibrium. So a positive supply shock lowers price and increases quantity sold.

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