Essay on Supply and Demand and New Supply Curve

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Economics for Decision-Making
1303AFE
Semester 1 2012
TUTORIAL QUESTIONS – TUTORIAL TWO in WEEK THREE

ASSESSMENT: Worth 1.5%.
You must hand in your completed answer sheet (pages 6-7) to the tutor at the beginning of the relevant tutorial. You must attend for the full period of the tutorial to which you have been assigned.

The PURPOSE of these TUTORIAL QUESTIONS
Introduction to:
(i) Markets for Goods and Services
(ii) Interaction of Demand and Supply
(iii) Market adjustment

Note: You are encouraged to work on these questions and problems with fellow students but the answers must be hand-written into the spaces provided on the printed answer sheet and handed in individually.

Part A: Multiple Choice Questions

1. Which of the following will affect the level of demand for a retail commodity?

(a) the price of complementary commodities
(b) the price of substitute commodities
(c) income of consumers
(d) the prices of the inputs used to produce the commodity
(e) all of the above except (d)

2. Which of the following will affect the level of supply of a retail commodity?

(a) the price of complementary commodities
(b) the price of substitute commodities
(c) income of consumers
(d) the prices of the inputs used to produce the commodity
(e) all of the above except (d)

3. From 2009 Queensland cyclones and floods led to a dramatic increase in the price of bananas in Queensland. The original demand and supply curves and market equilibrium are shown in Figure 1.
As a result of the flood, what is the expected new market equilibrium in the Figure 2 below? Note – only one curve changes position as a result of the flood.

(a) The market equilibrium of agricultural commodities such as bananas is not changed
(b) Demand Curve A; Price, Pa; and Quantity, Qa.
(c) Supply Curve B; Price, Pb; and Quantity, Qb.
(d) Neither answer (a) nor answer (b) is correct.

4. In the Figure below the point W, on the vertical axis of the diagram represents:
(a) a level of demand equal to zero
(b) the minimum price required by suppliers before it is worthwhile supplying to the mark
(c) the price at which the demand is equal to zero et
(d) price at which the demand is equal to supply
(e) we cannot tell from the information given

5. Plasma screens are a necessary input in the production of laptop computers. In the diagram below, if there is a decrease in the price of plasma screens, what would happen in the market for laptops:

(a) a new supply curve for laptops shown as line Aa, reducing the price of laptops in the market
(b) a new supply curve for laptops shown as line Aa, increasing the price of laptops in the market
(c) a new supply curve for laptops shown as line Bb, reducing the price of laptops in the market
(d) a new supply curve for laptops shown as line Cc, reducing the price of laptops in the market
(e) there will be no effect on the supply curve of laptops and therefore no impact on market price

6. If there is an increase in production costs for motorbikes and there is an increase in the annual road tax and licence fees paid by their purchasers, we expect:

(a) the supply curve to shift upwards to the left and the demand curve to shift downwards to the left
(b) the supply curve to shift upwards to the left and the demand curve to shift upwards to the left
(c) the supply curve to shift upwards to the left and the demand curve to stay unchanged (d) the original supply curve would not shift but demand would increase

7. Assume that (i) bauxite mined in North Queensland and (ii) bauxite mined in Russia are close substitutes* when used as inputs to aluminium production in the global market. If the price of North Queensland bauxite increases, we expect the demand curve for Russian bauxite to:

(a) shift to the left and downwards
(b) shift to the right and upwards
(c) remain unchanged
(d) all the above are equally likely
(e) none of the above will
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