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Market Economics: Supply, Demand, and Cost Analysis

A short-answer test on market economics, focusing on supply, demand, and cost analysis in economic systems.

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Market Economics: Supply, Demand, and Cost AnalysisShort answers Test 11.With reference to the textbook market at your school, describe market supply anddemand in both the new and used book market.The market demand for the text books at our school is the total demand for thetext books by all the students at various books shops is termed as the marketdemand for text books. While the total quantity oftextbooks(old and new)sold ata price by all the book shops is known as the market supplywhen other thingsremain the same.2.In week one, men’s leather shoes sold for $69/pair. The shoe store ran a specialthe second week and men’s leather shoes were marked down to $59/pair. Salesrose from 116 pairs to 132 pairs. Assuming all other economic conditions werethe same, what is the price elasticity for these shoes? Is demand elastic orinelastic? Explain your answer.Price Elasticity =Percentage change in the quantity demandedPercentage change in the pricePE =∆Q/Q X P/∆PQ = 116, ∆Q = 16 =132–116, P = $69/pair, ∆P =-$10 ($59--$69)PE for shoes =16 X69116 X-10Therefore, PE =--0.95, which is less than 1.This means that as the price elasticity for Men’s leather shoes is less than 1 thedemandfor men’s shoes is less elastic or inelastic.3.Suppose Suzanne buys potatoes and onions. The MU of the next potato is 104utils and the MU of the next onion is 88 utils. Potatoes cost $0.44 and onions cost$0.62. She only has money to buy one of them. Which should she buy?Under the given circumstances, Suzanne would buy potatoes with the limitedincome she has at her disposal, because the price of potatoes is less than themarginal utility she would be getting from the purchase of her additional unit ofpotatoes. Whereas, the MU of onion is comparatively lower than that of potatoesand the price is higher than that of the potatoes. This is so because a rationalconsumer tries to maximize his/her satisfactionor total utilityfrom the given

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Economics

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