1. Why do we need microeconomic models? Using appropriate diagram(s), explain how changes in a factor that affects demand, supply, or a new government policy alters the market (equilibrium) price and quantity of a good.
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1. Why do we need
changes in a factor that affects demand, supply, or a new government policy alters the
market (equilibrium) price and quantity of a good.
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- The questions in parenthesis are the answer choices. Only 1 can be selected. In each of the following cases, determine how supply or demand shifts and how the equilibrium changes. a. Smartphones: Microchips used in smartphones become less costly to produce. As a result, the (demand for ,supply of, supply of and demand for) smartphones increase(s), causing the equilibrium price to (fall, rise, rise, fall, or remain unchanged) and the equilibrium quantity to (fall, rise, rise, fall, or remain unchanged) b. ALS medical research funds: The ALS ice bucket challenge goes viral, leading to greater awareness of the benefits of and need for ALS research. As a result, the (supply of and demand for, demand for, supply of) ALS research increase(s), causing the equilibrium price (or opportunity cost) of such research to (fall, rise, rise, fall, or remain unchanged) and the equilibrium quantity to (fall, rise, rise, fall, or remain unchanged) .1. use the theory of market( i.e demand and supply ) to expaln what is happening in each of the following scenarioAssume that each of the markets below is initially in equilibrium. Then for each market below, suppose that the indicated scenario occurs. Illustrate the effect of each event in a diagram and indicate the effects on the equilibrium price and quantity. d. Market: Caffeinated beverages. Scenario: Starbucks opens a franchise in St. Lucia. e. Market: Cigars Scenario: The government places a tax on cigar producers to discourage smoking coupled with the private sector running ad campaigns on the detrimental effects of smoking f. Market: Ketchup. Scenario: Insects kill half the nation’s tomato crop
- Which market determinants deal to represent the effective demand? a. Demographic variables b. Technological variables c. Purchasing prosperity d. Economic variables1. Consider each scenario independently. In each of the following cases, provide an explanation and draw a graph to show:– (a) What will happen in the market for wine if the price of cheese increases (wine and cheeseare complements)?(b) What will happen in the market for brewed coffee if the price of coffee beans decreases?(c) What will happen in the market for lobster if the government reduces the income tax andlobsters are a normal good?(d) What will happen in the market for tomatoes if a new study is released that shows tomatoescontain antioxidants (may help prevent cancer)?(e) What will happen in the market for corn if a new crop rotation technique is discovered thatallows corn to be grown more easily and the price of green beans, a substitute, decreases?(f ) What will happen in the market for gasoline if the price of oil increases and there is a vastincrease in the population (e.g., another baby boomer generation)?(g) A tax on gun buyers.(h) A binding price floor on guns.Discuss how prices are determined in a market economy. Find a good/service for which the price has recently changed and try to provide an explanation as to why the price changed the way it did using the concepts of supply and demand. That is, if the price of that good/service increased (or decreased), explain why.
- SECTION A Answer All Questions 1. Which of the following questions is a type that tools of econometrics are meant to answer? A. If goods A and B are substitutes and the price of good A increases by KSH 10, by how much will the quantity demanded of good B change by? B. If goods A and B are substitutes and the price of good A increases, how will this affect the demand for good B? C. If an income increase causes the sales of good A to fall, everything else held constant, what type of good is good A? D. Everything else the same, would the price of good A be higher in a competitive industry or a monopolistic industry? 2. Consider the model Qª = ƒ (P, P³,Pº, INC) where Qªis quantity demanded of a bar soap per month, P is the price per bar of soap, Ps is the price of substitutes, P is the price of complements, and INC is monthly income. This equation represents A. a non-linear model B. an economic model C. an econometric model D. an interval forecastHow is equilibrium determined in goods market?Assuming hypothetical equilibrium in Demand/Supply Model of Apples, illustrate impact of following events:A. Suppose the Doctors recommend eating Apples every morning. B. The Monsoon rains adversely affect the Apple Harvest. C. The government announces increase in Wages of workers. D. The price of petrol in the market comes down.E. Consumers Income falls during government imposed Lockdowns due to health concerns.
- TRUE or FALSE. If the statement is correct, write TRUE on your answer sheet. If thestatement is incorrect, write FALSE. Explain why you answered TRUE or FALSE. 1. To some extent economics is about trade-offs. 2. If there is evidence that consumer income and the price of smartphones have influence onthe demand for tablet computers, the leftward shift in the demand curve of tabletcomputers is caused by a decrease in the price of tablet computers. 3. If fish and chicken are substitute goods, when the price of fish decreases with bountifulharvest, there will be a decrease in the quantity demand for chicken. 4. If organic virgin coconut oil (VCO) has been proven to enhance your immune systemagainst corona virus, the price VCO will increase because of a shift in supply and anunchanging demand curve.d. How will this change the equilibrium price and quantity of coffee? Explain your reasoning. Scenario 2: The Ministry of health publishes a study finding that coffee drinking reduces the probability of getting cancer. a. How do you imagine this will affect the market for coffee? Why? b. Which determinant of demand or supply is being affected? Explain. c. Show graphically the changes in demand or supply. d. Will this change the equilibrium price and quantity of coffee? Explain your reasoning.Analyze the following statements and categorize them into Determinants of Demand(DD) or Determinants of Supply (DS)._________8. Stell expects that the price of a kilo of rice will increase the following dayso he decided to buy now for tomorrow’s consumption.