Dr Chen Chapter 3 Q4 Illustrate Each Of The Following Events

Dr Chenchapter 3q4 10illustrate Each Of The Following Events With

Dr. Chen Chapter 3 Q4: (10%) Illustrate each of the following events with supply or demand shifts in the domestic car market: (Please also conclude the market equilibrium price and quantity changes) (a) The U.S. economy falls into a recession. (b) U.S. autoworkers go on strike. (c) Imported cars become more expensive. (d) The price of gasoline increases. Q5: (10%) Assume the following data describe the gasoline market: Price per gallon $2.......50 Quantity Demanded Quantity Supplied (a) What is the equilibrium price? (b) If supply at every price is increased by 10 gallons, what will the new equilibrium price be? Chapter 4 Q6: (10%) The following is a demand schedule for shoes: Price (Per Pair) $120 $100 $80 $60 $40 Quantity Demanded (in pairs per year) (a) As the price drops from $80 to $60 a pair, is demand elastic or inelastic? (b) Based on your answer in (a), a shoes salesman should raise or cut price to increase the total revenue? Q7: (5%) Suppose the following table reflects the total satisfaction (utility) derived from eating pizza: Quantity consumed Total Utility (a) What is the marginal utility of each pizza? (b) From which unit of pizza consumption, the law of diminishing marginal utility starts? Chapter 5 Q8: (10%) Suppose the mythical Tight Jeans Corporation leased a sewing machine, giving it the following production function: Number of workers: Quantity of Output: (a) At what level of employment does the law of diminishing returns become apparent? (b) Assume the wage per worker is $24, please compute the marginal cost of each additional pair from 78 to 81 pairs of jeans. Q9: (5%) Suppose a company incurs the following costs: Labor $5,000 Equipment $3,000 Materials $1,000 It owns the building, so it doesn’t have to pay the usual $2,000 in rent. (a) What is the total economic cost? (b) How would accounting and economic costs change if the company sold the building and then leased it back? Chapter 6 Q10: (15%) Suppose that the monthly market demand schedule for Frisbees is: Price $8 $7 $6 $5 $4 $3 $2 $1 Quantity Demanded ,,,,000 Suppose further that the marginal and average costs of Frisbee production for every competitive firm are Rate of Output Marginal Cost $2.00 $3.00 $4.00 $5.00 $6.00 $7.00 $2.00 $2.50 $3.00 $3.50 $4.00 $4.50 Finally, assume that the equilibrium market price is $5 per Frisbee. (a) How many Frisbees are being sold in equilibrium? (b) How many (identical) firms are initially producing Frisbees? (c) How much profit is the typical firm making? (d) In view of the profits being made, more firms will want to get into Frisbee production. In the long run, these new firms will shift the market supply curve to the right and push the price down to average total cost, thereby eliminating profits. At what equilibrium price are all profits eliminated? How many firms will be producing Frisbees at this price?

Paper For Above instruction

The following analysis explores various economic events in the context of supply and demand shifts within the domestic car market, alongside foundational market analysis scenarios involving gasoline, shoes, jeans, costs, and Frisbees. Each case emphasizes the pivotal role of market forces in determining equilibrium prices, quantities, and the strategic responses of firms and consumers.

Illustrating Supply and Demand Shifts in the Domestic Car Market

When the U.S. enters a recession, consumer income declines, leading to a decrease in the demand for new cars. This shift results in a leftward demand curve, reducing both the equilibrium price and quantity of cars sold. As a consequence, car manufacturers experience lowered revenues, and market clearance occurs at a lower equilibrium point.

If U.S. autoworkers go on strike, the immediate effect is a reduction in the supply of cars, shifting the supply curve leftward. This constriction in supply causes the equilibrium price to rise due to scarcity, while the equilibrium quantity declines. Automakers might face short-term losses, but the higher prices could incentivize increased production once strikes are resolved.

When imported cars become more expensive, the domestic demand for these cars shifts outward as consumers turn to domestically produced alternatives, reflecting a rightward demand shift. The result is an increase in both equilibrium price and quantity of domestically sold cars, reallocating market share and possibly benefiting local producers.

An increase in gasoline prices raises vehicle operating costs, which can alter demand for cars, particularly fuel-efficient or alternative-fuel vehicles. Typically, higher gas prices increase demand for fuel-efficient vehicles, shifting weight onto the demand curve for such cars and potentially increasing their market share while decreasing demand for less efficient models.

Market Equilibrium in Gasoline Markets

The equilibrium price in the gasoline market is determined at the intersection of demand and supply curves, which is at $2.50 per gallon in the data provided. If supply increases uniformly by 10 gallons at every price, the supply curve shifts rightward. The new equilibrium may see a decrease in price, depending on the magnitude of the shift relative to demand responsiveness. Usually, increased supply leads to a lower equilibrium price and higher quantity exchanged.

Elasticity of Demand for Shoes

According to the demand schedule, as the price drops from $80 to $60, demand is elastic. The percentage change in quantity demanded exceeds the percentage change in price, implying consumers are responsive to price changes. In such a context, a shoe salesman aiming to increase total revenue should reduce prices, capitalizing on elastic demand to boost sales volume and overall revenue.

Utility and Diminishing Marginal Utility in Pizza Consumption

Total utility data shows that the marginal utility decreases with each additional pizza consumed, exemplifying the law of diminishing marginal utility. Diminishing utility typically begins after the first few units, often observed from the consumption of the third or fourth unit, as additional units provide less incremental satisfaction.

Production Costs and Diminishing Returns in Jeans Manufacturing

The production function of the leasing company indicates that the law of diminishing returns becomes noticeable after a certain employment level, often when additional workers contribute less to output than previous workers. Calculating marginal costs based on wage rates reveals increasing marginal costs as output expands, especially after diminishing returns set in.

Cost Analysis of Company Operations

The total economic cost includes explicit costs such as labor, equipment, and materials. Since the company owns the building, its rent is a non-explicit opportunity cost; thus, total economic costs comprise all explicit costs and implicit costs like ownership of assets. If the firm sells and leases back the building, accounting and economic costs would align more closely, possibly affecting the firm's valuation and tax considerations.

Market Dynamics in the Frisbee Industry

The equilibrium number of Frisbees sold is identified at a market price of $5, where the quantity demanded equals the supplied quantity. The number of firms initially producing Frisbees is derived from the total output divided by individual firm output, considering constant average costs. Firms earn zero economic profit at equilibrium, signaling entry or exit in the long run if profits are positive or negative.

In the long-term, with returns to entry, more firms will enter until profits are eliminated at the point where price equals average total cost. This equilibrium price ensures firms earn zero economic profit, and the number of firms stabilizes at the level where total market supply matches demand at that price.

Conclusion

In essence, market equilibrium is sensitive to shifts in demand and supply driven by macroeconomic changes, consumer preferences, and production costs. Recognizing these dynamics enables firms and policymakers to make informed decisions to optimize outcomes amidst evolving economic conditions, underscoring the importance of elasticity, marginal analysis, and long-term market adjustments.

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