How are the equilibrium price and quantity affected when?
(a) Both demand and supply curves shift in the same direction?
(b) Demand and supply curves shift in opposite directions?
When both the demand and supply curves shift in same direction then following will happen:
Cases |
Equilibrium Price |
Equilibrium Quantity |
Increase in demand is equal to increase in supply. |
Unchanged |
Increases |
Increase in demand more than increase in supply |
Increases |
Increases |
Increase in demand less than increase in supply |
Falls |
Increases |
Decrease in demand equal to decrease in the supply |
Unchanged |
Falls |
Decrease in demand more than the decrease in supply |
Falls |
Falls |
Decrease in demand less than decrease in supply |
Increases |
Falls |
(b) Demand and supply curves shift in opposite directions?
Cases |
Equilibrium Price |
Equilibrium Quantity |
Increase in demand is equal to decrease in supply. |
Increase |
Unchanged |
Decrease in demand more than increase in supply |
Unchanged |
Increases |
Decrease in demand less than increase in supply |
Decreases |
Increases |
Decrease in demand is more than increase in the supply |
Decrease |
Decrease |
Increase in demand less than the decrease in supply |
Increase |
Decrease |
Increase in demand more than decrease in supply |
Increases |
Increase |
What is the supply curve of a firm in the long run?
The market price of a good changes from Rs 5 to Rs 20. As a result, the quantity supplied by a firm increases by 15 units. The price elasticity of the firm’s supply curve is 0.5. Find the initial and final output levels of the firm.
A firm earns a revenue of Rs 50 when the market price of a good is Rs 10. The market price increases to Rs 15 and the firm now earns a revenue of Rs 150. What is the price elasticity of the firm’s supply curve?
Distinguish between a centrally planned economy and a market economy.
How does the imposition of a unit tax affect the supply curve of a firm?
A consumer wants to consume two goods. The prices of the two goods are Rs 4
and Rs 5 respectively. The consumer’s income is Rs 20.
(i) Write down the equation of the budget line.
(ii) How much of good 1 can the consumer consume if she spends her entire
income on that good?
(iii) How much of good 2 can she consume if she spends her entire income on
that good?
(iv) What is the slope of the budget line?
Questions 5, 6 and 7 are related to question 4.
What is the relation between market price and average revenue of a price-taking firm?
What is budget line?
Suppose there are 20 consumers for a good and they have identical demand functions:
d(p)=10–3pd(p)=10–3p for any price less than or equal to 103103 and d1(p)=0d1(p)=0 at any price greater than 103.
Suppose your friend is indifferent to the bundles (5, 6) and (6, 6). Are the preferences of your friend monotonic?
Explain why the budget line is downward sloping.
Suppose there are 20 consumers for a good and they have identical demand functions:
d(p)=10–3pd(p)=10–3p for any price less than or equal to 103103 and d1(p)=0d1(p)=0 at any price greater than 103.
Suppose there are two consumers in the market for a good and their demand functions are as follows:
d1(p) = 20 – p for any price less than or equal to 20, and d1(p) = 0 at any price greater than 20.
d2(p) = 30 – 2p for any price less than or equal to 15 and d1(p) = 0 at any price greater than 15.
Find out the market demand function.
Can there be some fixed cost in the long run? If not, why?
What do you understand by positive economic analysis?
If the price of a substitute Y of good X increases, what impact does it have on the equilibrium price and quantity of good X?
A consumer wants to consume two goods. The prices of the two goods are Rs 4
and Rs 5 respectively. The consumer’s income is Rs 20.
(i) Write down the equation of the budget line.
(ii) How much of good 1 can the consumer consume if she spends her entire
income on that good?
(iii) How much of good 2 can she consume if she spends her entire income on
that good?
(iv) What is the slope of the budget line?
Questions 5, 6 and 7 are related to question 4.
Explain price elasticity of demand.
How does the budget line change if the consumer’s income increases to Rs 40 but the prices remain unchanged?
How will a change in the price of coffee affect the equilibrium price of tea? Explain the effect on equilibrium quantity also through a diagram.