Introduction to Economics Exercise 1

1481 Words Dec 4th, 2012 6 Pages
Exercise 1

1. What determines that a resource be scarce? Why is scarcity important in defining Economics as a science
Resources are seen as being scarce, when the wants exceed the resources. The fundamental problem of economics relates to the choices made in the face of limited resources and unlimited wants.

2. Read your local newspaper and economic magazines. Explain the difference between Microeconomics and Macroeconomics. From your research, give three examples of microeconomic and macroeconomic issues.
Microeconomics relates to the study of households and firms and the interaction between these different economic actors. Macroeconomics, however, relates to the study of the economy as a whole,
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All the market will be affect; we will see an increase of demand for main and complementary goods. Shortage will probably appear and price will increase to search equilibrium. Rumor will be reality.

7. Using the following demand and supply table

Price | Demand | Supply | 1.25 | 8 | 28 | 1.00 | 14 | 24 | 0.75 | 20 | 20 | 0.50 | 26 | 16 | 0.25 | 32 | 12 |

a. Graph the demand curve and the supply curve b. Identify the equilibrium price and equilibrium quantity c. Assume a price of 1.00, Identify if there is shortage or surplus in the market and how the market forces behave to reinstate the equilibrium d. Now assume the price is 0.50 and repeat the question above e. Now assume this is the market behavior for an inferior good, what would happen if the consumers income would increase from $ 25 to $ 32 a week f. Assume this markets complementary good´s price increases, what would happen in this market g. Assume there is a rumor that the price for this good will increases in the following days. How do expectations affect this market? What will be the final outcome?
For all the questions above you must support your answer with a graph. 8. Price elasticity of demand : (0,1)/(-0,2) = -1,5
The demand is elastic and sensitive to price changes.

9. Price elasticity of demand :
((0,38-0,5)/0,5) = -0,24 -24%
((26000-10000)/10000) = 1,6 160%
(-0,24)/(1,6) = -0,15
The demand is elastic and sensitive to price

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