Gipulan, Piolo Kyle E.

Managerial Economics
ACT199

EXERCISE 1: DEMAND CURVE

• Draw a demand curve for music downloads.
• What happens to it in each of the following scenarios? Why?
• Identify the items in each case whether substitutes or compliments
A. The price of iPods falls
B. The price of music downloads falls
C. The price of compact discs falls

ANSWERS:
A.
When the price of
iPods falls, the Demand
curve of Music Downloads
Price of the Music

shifts to the right.

Downloads

iPods are
complementary goods of
Music download which is
one of the factors why the
demand curve shifted to
the right.

Quantity of the Music

Downloads

B.
When the price of
Music downloads falls, the
Demand curve moves
Price of the Music

along the curve, it doesn’t

Downloads

shift.
The price of music
downloads was neither
P1 complementary nor
substitute goods.
P2

Q1 Q2

Quantity of the Music

Downloads
 C.
When the price of
Compact discs falls, the
Demand curve of Music
Downloads shifts to the
Price of the Music

left.
Downloads

Compact discs are

substitute goods of Music
downloads which is one of
the factors why the
demand curve shifted to
the left.

Quantity of the Music

Downloads
Gipulan, Piolo Kyle E.
Managerial Economics
ACT199
EXERCISE 2: SUPPLY CURVE
• Draw a supply curve for tax return preparation software.
• What happens to the supply curve in each of the following scenarios?
A. Retailers cut the price of the software.
B. A technological advance allows the software to be produced at lower
cost.
C. Professional tax return preparers raise the price of the services they
provide.

ANSWERS:
A.
When the retailers
cut the price of the tax
Price of the Tax return

return software, the

Supply curve moves along
Software

the curve, it does not shift.

Also, as a result of
the price cut, the price and
the quantity supplied was
P1 lowered.

P2

Q2 Q1

Supply of the Tax return

Software

B.

When there is a fall

Price of the Tax return

in the cost of producing tax

return software, the
Software

Supply curve shifts to the

right.
As a result, the
quantity supplied
increases at each price.

Supply of the Tax return

Software
 C.
When Professional
tax return preparers raise
the price of the services
Price of the Tax return

they provide, the Demand

curve was affected not the
Supply curve.
Software

As a result, the
Supply curve stays the
same.

Supply of the Tax return

Software