Econ531

University of Liberia
Graduate School
Econ 531 Assignment

1. a. An increase in consumer incomes

The demand for computers will rise when there is an increase in consumer income presuming
that computers are normal goods. An increase in the income of the consumer will raise the
level of consumption for the consumer because the consumer needs income to make a
purchase. Consumers want buy more normal goods as their income rises.
b. An increase in the price of computers
The demand for computers will decrease if there is an increase in the price of computers
presuming that computer are inferior goods. The rise in price will cause the consumer to pay
more for the same product because their
An increase in price without an increase in income will make consumers demand fewer
computers.
c. A decrease in the price of Internet service providers
A decrease in the price for internet service will raise the demand for computers. Internet
service is a service that is usually purchased along with a computer, making it a complementary
good. A decrease in internet service price is a decrease in overall cost if a consumer is
purchasing both.
d. A decrease in the price of semiconductors
A decrease in the price of semiconductors will have no effect on the demand for computers.
Semiconductors are input for computers that are used in the production process. A decrease in
the price of semiconductor will have an effect on the firm’s production.
e. It is October, and consumers expect that computers will go on sale just before Christmas.
If consumers are expecting a price decrease in December they will not demand as many
computers in October. If a consumer can spend less for the same good they will. This enables
the consumer to purchase more goods for the same level of income.
2. a. A change in technology that lowers production costs: in the situation, supply of computers
will increase. A lower production cost means that the firm can produce more goods for the
same price. When the firm has more goods they can increase their profits.
b. An increase in the price of semiconductors: In this situation, supply of computers will
decrease. Semiconductors are an input in the production process of computers, and will raise
production cost firms will produce fewer computers.
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c. A decrease in the price of computers: here, a decrease in the price of computers will
decrease the quantity of computers supplied along the same supply curve. This is because price
decrease means the means the firm will take in less revenue for the same level supply and thus
less profit. So, decrease price act as a disincentive for supplier.
d. An increase in the wages of computer assembly workers: Here an increase in wages of
computer assembly worker will decrease the supply of computers. Since wages are part of the
costs, so increase in input cost will discourage firms to produce fewer computers. As a result,
firms will supply fewer computers to computers to maintain the profit margin.
e. An increase in consumer incomes: This situation will not impact on the supply of computers.
Consumers’ income is a factor of the demand for computers. When consumer income raises the
demand for computers will rise since computers are normal goods.
3. Qd = 500 - 5Px + 0.5I + 10Py - 2Pz
Where, Qd = Quantity demanded of good X, Px = Price of good X, I = Consumer income, in
thousands, Py = Price of good Y, and Pz = Price of Z.
Based on the above demand curve, X is a normal good. The sign (-) indicates that there is an
inverse relationship between demand for X and price of that commodity.
b. Based on the demand curve, X and Y are substitutes. The sign (+) indicates that there is a
positive relationship between the demand for X and the price for Y.
c. Based on the demand curve, X and Z are complementary goods. The sign (-) indicates that
there is an inverse relationship between the demand for X, and price of Y.
d. If the income of the consumer is $30,000 and the price of good Y is $10 and the price of good
Z is $20, then the equation of demand curve is as follows:
Qd = 500 - 5Px + 0.5I + 10Py - 2Pz
Qd = 500 - 5Px + (0.5 x 30) + (10 x 10) – (2 x 20)
Qd = 575 – 5Px
e. According to the equation Qd = 575 – 5Px, the demand curve will be negatively sloped to the
inverse relationship between the demand for good X and price of good X. The demand curve is
shown in the graph below:
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The price intercept is $115, quantity intercept is $575 and the slope is -0.2.
f. If the price of good X is $15, the quantity demanded will be as follows:
Qd = 575 – 5Px
Qd = 575 – 5(15)
Qd = 575 – 75
Qd = 500
Thus, at the price of $15, the quantity demanded for good X is $500.
The demand curve is shown in the graph above.
g. If the price of good Y rises to $15, the demand curve will be as follows:
Qd = 500 - 5Px + 0.5I + 10Py - 2Pz
Qd = 500 - 5Px + 0.5(30) + 10(15) – 2(20)
Qd = 500 - 5Px + 15 + 150 - 40
Qd = 625 - 5Px
The price intercept is $125, quantity intercept is $625 and the slope is -0.2. See the graph
above.
4. a. The slope of a supply curve has an equation that can be calculated to help with plotting the
curve. The supply curve for this problem is a function of the price of two goods and production
inputs. Here is the equation of the supply curve function:
Qs = - 200 + 20Px - 5Pi + 0.5Pz
The variable Qs denotes quantity supplied of good X, Px denotes price of X, PI denotes price of
inputs for good X, and Pz denotes price of good Z.
The supply curve function shows that Pz is a multiple of zero point five, a positive number.
There is a positive relationship between the price of good Z and the quantity supplied of good
X. This means that goods X and Y are complementary. A rise in the price of good Z causes the
producers to supply more of good X.
b. Calculate the supply curve when the price of inputs is $10 and the price of Z is $20:
Qs = - 200 + 20Px - 5Pi + 0.5Pz
Qs = - 200 + 20Px – 5(10) + 0.5(20)
Qs = - 200 + 20Px - 50 + 10
Qs = - 240 + 20Px
c. The graph of the supply curve: Qs = - 240 + 20Px
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The price intercept is $12 and the slope is 0.05

d. The minimum price can be found by setting the Quantity to zero. We can calculate the
minimum price using the supply curve equation:
Qs = - 240 + 20Px
0 = -240 + 20Px
240 = 20Px divide both side by 20
12 = Px
The lowest price that producers will charge is $12.
e. Calculate the quantity supplied when the price of good X is $25 using the supply curve
equation:
Qs = - 240 + 20Px
Qs = - 240 + 20(25)
Qs = 260
A producer will supply 260 units when the price of good X is $25. See the graph below:
f. Calculate the supply curve when the price of inputs is $5 and the price of Z is $20:
Qs = - 200 + 20Px - 5Pi + 0.5Pz
Qs = - 200 + 20Px – 5(5) + 0.5(20)
Qs = - 200 + 20Px - 25+ 10
Qs = - 215 + 20Px
If the price of inputs is $5, the supply curve equation will be: Qs = - 215 + 20Px
The price intercept is $10.75 and slope is 0.05. See the graph above.
5. a. At $120 goods are not bought. So $120 is the y-intercept. $10 decrease gives the slope
negative calculated as:
Slope (m) = change in price/change in quantity = - 10/20 = -1/2
The equation for the supply curve of Good X will be: P = -1/2Qd + 120
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Or Qd = 240 – 2P
b. m = 10/30 = 1/3
P = 1/3Qs + 50 or Qs = 3P – 150
c. At equilibrium: Qd = Qs
so, 240 – 2P = 3P – 150
5P = 390
P = 78
d. Shortage of $40 means: Qd – Qs = 40
so, (240 – 2P) – (3P – 150) = 40
240 – 2P – 3P + 150 = 40
5P = 240 + 150 – 40
5P = 350
P = 70
e. At the surplus of $60: Qs – Qd = 60
so, (3P – 150) – (240 – 2P) = 60
3P – 150 – 240 + 2P = 60
5P = 60 + 150 + 240
5P = 450
P = 90

6. a. With substitute goods, consumers would rather have one or the other. When the price of
the substitute rises, the demand will shift to the right. The equilibrium price and quantity will
rise. See the graph:
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b. When the price of an input of production rises this cost goes directly to the producing firm.
The firm will decrease the supply and the curve will go to the left. Equilibrium price will rise and
equilibrium quantity will fall. See the graph:

c. If consumer expect the price of a good to rise in the future, the demand will raise for the
good while the price is still the same. The demand will shift to the right and raise equilibrium
price and quantity. See the graph:

d. When a technology discovery makes the production process more cost efficient the savings
go to the supplier. The supplier will increase the supply of the good since it is cheaper to make.
The supply curve will shift to the right, the equilibrium price will fall and the equilibrium
quantity will rise. See the graph:

e. If consumers demand that the usefulness of a good has diminished, then the demand for the
good will fall. The demand curve will shift to the left and the equilibrium price and quantity will
fall. See the graph:
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7. a. The bad weather decreases the production of coffee beans and supply of coffee bean
decreases in the market. Equilibrium point shifts from E1 to E2 corresponding to which price
increase to P2 and quantity decreases to Q2. See the graph:

b. Coffee bean are the raw material for coffee. When price of raw material increases, supply
decreases. Equilibrium point shifts from E1 to E2 corresponding to which price increase to P2
and quantity decreases to Q2. See the graph:

c. Nondairy creamer is a raw material of coffee. When supply of coffee decreases, the demand
for creamer decreases. Equilibrium point shifts from E1 to E2 corresponding to which price
decreases from P1 to P2 and quantity decreases Q1 to Q2. See the graph:
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d. Tea is substitute for coffee. When price of coffee increases, demand for tea increases and
demand curve shifts to the right. Equilibrium point shifts from E1 to E2 corresponding to which
price increase to from P1 to P2 and quantity increases from Q1 to Q2. See the graph:

8. a. Being an inferior good the demand for hamburgers will rise when the income level goes
down. When consumers have less to spend, they want more hamburgers. An increase in the
efficiency of production of hamburgers will have savings that go to producers. Producers will
make more of the product because it is cheaper to make. The rising demand will shift the
demand curve to the right and the increase to supply curve to the right. Both curves going to
the right will cause the equilibrium price to stay the same. The equilibrium quantity will rise.
See the graph:

b. If the fall in income level is relatively small then the demand curve will move to the right
slightly. If the fall in input costs is large then the supply curve will move to the right a lot. The
new equilibrium price will fall and the new equilibrium quantity will rise. The income level of
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consumer affected the price mostly and the price of the inputs affected the supply mostly. See
the graph: