Project
Asma Al-Fattouh 201001888
Noura Al-tamimi 201200232
Aisha Al-moqbil 201101106
Zahraa Saeed 201101924
Nouf Al-subaie 201102254
Section: 204
Microeconomics ECON 1312
Dr. Kumarashvari Subramaniam
4 December, 2012
1. Table 1 below gives two demand schedules of an individual for product
ZYZ. The second quantity demand resulted from an increase in the
individual’s disposal income (while keeping everything else constant).
Table1 – Demand Schedules for Product ZYZ
Price (SR) 12
10
8
6
4
Qd¹
18
20
25
30
40
Qd²
35
40
45
55
70
2
60
100
Price
a. Plot the points of the two demand schedules on the same set of axes (or
on the same graph) and get the two demand curves. Label and
complete the demand curve accordingly.
Qd¹
Qd²
Qd²
Quantity
While keeping everything else constant, the two curves represent negative
relationship between the price of the product (ZYZ) and the quantity
demanded before and after the income increased.
b. What would happen if the price of ZYZ fell from SR 10 to SR 6 before
the individual’s income rose? (explain)
When the price of ZYZ fall from 10 SR to 6 SR the quantity demanded
will increase from 20 to 30 causing movement along the same curve.
Qd¹ from point b to point d.
c. At the unchanged price of SR 10 for ZYZ, what happens when the
individual’s income rises? (explain)
With a constant price of 10 SR of point b, when the income increase the
demand shift from 20 to 40 from Qd¹ point b to Qd² point b, and shifts the
demand curve to the right means that the ZYZ is a normal good.
d. What happens if a same time the individual’s income rises, the price of
ZYZ falls from SR 10 to SR 6?
Because ZYZ a normal good when individual income rises, the whole
demand curve will shift to the right to Qd² from Qd¹, but when the price
fall from 10 to 6 SR the quantity demanded will increases from 40 to 55 at
the Qd² curve from point b to d.
e. What type of good is product ZYZ? Why? Explain
The ZYZ is a normal good because the demand curve shifts to the right,
when income increased and all the points shifts to the right increased when
income increased even with a constant price level.
2. A hand-written document presenting the followings:
a. Elasticity:
Elasticity measures the quantity change response to change in price,
income and other related products (substitute and complement goods)
prices, which measured by the percentage change in quantity divided by
percentage change in price, which called price elasticity of demand. And
this elasticity has different types and degrees depend on many factors to be
elastic or inelastic as how the product is necessity or luxury or substitute
available or not.
b. The Production Possibility Frontier:
Because every country and society and every individuals facing scarcity in
resources and the needs and wants are exceeding the resources, they can’t
satisfy everything they need. So they have to choose among different
combination, and the production possibility frontier (PPF) shows the
maximum quantity of goods that can be efficiently produced by an
economy, given its technological knowledge and the quantity of available
inputs constant. Inside the PPF curve is attainable but inefficient resources
used (unemployment). And outside the PPF curve is unattainable because
of scarcity.
c. Supply, Demand and Equilibrium:
Supply is the total of all quantity supplied at different prices and related
positively with the price, and it’s the quantity supplied is the total amount
that the producers are willing to sale at different prices and specific period
of time.
Demand is the sum of all quantity demanded at different prices, and it’s
the amount that the consumer is willing and able to purchase at each price
of any period of time, and it’s related negatively with the price increased if
the price decreased.
The equilibrium between demand and supply it’s the point when demand
equal supply with no excess demand or excess supply , when demand is
more than supply there is shortage at the market leads the price to increase
causing quantity demand to decrease and quantity supply to increase up to
equilibrium, but if the demand less than supply there is surplus at the
market which leads to decrease the price and quantity demand will
increase and quantity supply will decrease to be at equilibrium, and
determine the equilibrium price and equilibrium quantity with no excess.
d. Imperfect competition:
Imperfect competition or monopoly, occurs when a buyer or seller can
affect a good’s price, he can determine the quantity and the price of the
product and facing negatively sloped demand curve and determine the
price more than marginal cost with barriers of entry of new firms.
e. Opportunity cost:
Because our resources are limited, and we can’t do everything we need, we
must decide how to allocate our income or time. When we decide to do
anything, studying, select cloth or buying a car, we should give something
up (second best alternative there will be a forgone opportunity). This nextbest good that is forgone represents the opportunity cost.
The concept of opportunity cost can be illustrated by using the PPF, if we
want to increase one unit grow good X we should give some of good Y
(negative relationship between X and Y).
Reference
Economics by Paul A. Samuelson.