Principles of MicroEconomics - Speech or Presentation Example

Microeconomic Principles Demand can be defined as the correspondence between the quantity of that good or service demanded by consumers (the dependent variable) and a host of relevant explanatory variables.1. Demand for batter depends on the price of butter itself, price of its substitutes, price of complimentary goods and income. Therefore demand function for butter can be portrayed in notation form as:D=f (Pb, Ps, Pc, 1+/-)Where; D=demand for butterf=a functional relationship with arguments used in parenthesisPb=price of butterPs=price of substitutesPc=price of complimentary goodsI= disposable income+/-notes whether there is recession (+) or not (-)a) Increase in price of margarinePp1 p0 D1 D0 0 Q0 Q1 QIf all the factors are held constant increase in price of margarine which is a substitute of butter will make consumers to shift from consuming margarine hence increasing the demand of butter.

Therefore the demand curve will shift from D0 to D1. Due to increase in demand the price of butter also will start to rise.b) Increase in price of milk P P1 p0 D0 0 Q1 Q0 QIncrease in price of milk which is a raw material for processing of milk. This will cause an increase in price of butter. Holding all other factors constant the demand of butter will reduce form Q0 to Q1.

this can be seen well from the graph. c) Decrease in income levelspp0 D0 D1 0 Q1 Q0 QConsumer purchasing power will be primarily determined by the disposable income that they are left with after all the deduction have been made .this can be expressed in notation form as:Yd=Y-(TY+DY)Yd=Disposable incomeY=Gross incomeTY=income taxDY=other deductions taken at source that are dependent upon the income level.Therefore decrease in disposable income in real terms will cause demand of butter to reduce people will be having less income to spend.

The demand curve will shift from D0 to D1 as shown in the graph.2. a. True. Price elasticity of demand is the responsiveness or sensitivity of consumers to price changes. The demand curve shows the quantity of goods or services individuals are willing are will to buy at different prices. Price elasticity coefficient us given by:Εd= percentage change in quantity demanded of product X ________________________________________ Percentage change in price of product Xb. False. This because cross-price elasticity of demand is a ratio of the percentage change in the quantity demanded of some good X to a percentage change in the price of some other Y.

This means that if the two goods are substitutes the cross elasticity will be positive and if the cross-price elasticity of demand is negative the good are complimentary.c. True. This is because in the short run everything is fixed, therefore constructors have limited time to increase construction of apartments. Even though construction firms can still increase production by increasing labor force and efficiency, but relative to the long run supply is still inelastic. In the long run construction firms have enough time to change quantities of their resources and for new firms can start constructing apartments.

Therefore the longer the time the more likely will increase quantity of apartments supplied. Even-though the time may not be long enough to change their production techniques to meet the supply needs, they have longer responsive time to switch resources such as raw materials, location of construction and amount of labor.3i. Given demand function QD=160-8P and supply function QS=70+7p At equilibrium QD=QS 160-8p=70+7p -8p-7p=70-160 -15p=-90 P=90/15=600 p = $600ii.

At monthly price of $300 Given demand function QD=160-8p At equilibrium p=$600 Then QD=160-8(600) QD=1600000-4800 =1595200 peopleWhen monthly rent is $300QD=1600000-8(300)QD=1600000-2400QD=1597600 peopleChange in city’s population=1597600-1595200 =2400 peopleiii. Given supply function QS=70-7p and P=$900Then QS=700000+7(900)QS=700000+6300 =706300 apartmentsAt equilibrium p=$600Then QS=700000+7(600) QS=700000+4200 =704,200 apartmentsIncrease in supply=706300-704200 =2100 apartments50percent of increase come from new constructionThe 50/100*2100=1050 Therefore new constructed apartments are 10504.

Given QD=470 billion cigarettes P=$2 Εd= -0.4 Εs= 0.5 p S0 2 0.5 -0.4 D0 0 23.5 packs Q in billions