Question No.3 (Chapter 3) (25/ 5 points each) Please provide a graph of demand and supply for…

Question No.3 (Chapter 3) (25/ 5 points each)

Please provide a graph of demand and supply for each of these situations, show an original equilibrium and label the new equilibrium after the event takes place: how have prices and quantity of equilibrium changed?

a) Memory chips, a key component in portable hard drives, have fallen in price. What happens to the supply of portable hard drives?

b) What happens in the market for generic medicines when income falls? (Assume generic medicine is an inferior good)

c) Cream cheese has decreased in price due to technological improvement in its production. What happens in the market for bagels?

d) Since 2014, gas prices have steady decreased. What has happened in the market for SUVs in the US?

e) A severe drought has affected the Southern region of Egypt, traditional producers of persimmons? What happens in the agricultural market for persimmons?* Do not know what persimmons taste like? Have an adventure and visit your supermarket (exotic fruits section)!

Question No.4 (Chapter 4) (15 points)

Give an example of asymmetric information. Explain why asymmetric information leads to market failure.

An examle of Asymmetrical failure is when one grou has knowledge that is not shaed with another grou involved like when a car salesman doesn’t share all of the cars flaws or ast history with a client.A lack of equalinformationcauses economic imbalances that result in adverse selection eventually market failure.

Question No.5 (Chapter 4) (20 points)

Use the information in the following table to graph the demand curve for cupcakes and the supply curve for cupcakes.

Price per Cupcake

Quantity Demanded

Quantity Supplied

$1.00

8

0

$1.10

7

1

$1.20

6

2

$1.30

5

3

$1.40

4

4

$1.50

3

5

$1.60

2

6

$1.70

1

7

$1.80

0

8

a) On your graph label the area of deadweight loss if the price is set at $1.10

b) On your graph also label the area of surplus transferred from sellers to buyers.

Question No.6 (Chapter 5, Part I) (15 points/5 each)

Based on the following information for demand for shoes, please answer a-c:

a) Referring to the graph, if the price for shoes increases from $40 to $80 (from point d to point b), what is the absolute value for the price elasticity of demand (using the midpoint method)?

b) Based on your answer in (a) is this demand considered an elastic demand or an inelastic demand?

c) If the price were to increase given the price elasticity of demand, what would happen with Total Revenue in this market? (will it decrease or will it increase?)

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