Session 1 - Microeconomics-17 - Toronto Purple 2017 Session 1 Microeconomics Supply and demand Price elasticity of demand Marginal revenue total revenue

Session 1 - Microeconomics-17 - Toronto Purple 2017 Session...

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Toronto Purple 2017 Session 1: Microeconomics Supply and demand Price elasticity of demand Marginal revenue, total revenue and elasticity Cross, income & supply elasticities Production and costs Economic profits Profit maximization and imperfect competition Perfect competition Economic welfare & spillover effects Ceilings, floors, taxes and subsidies BU606 Session 1: Microeconomics Page 1 of 40
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Toronto Purple 2017 Supply and demand Quantity demanded for a good (Q D ) depends on Price of the good Price of… …substitutes (buy less if cheaper subs.) complements (buy more if cheaper comp) Income of buyers Normal good (buy more if income rises) Inferior good (buy less if income rises) Population of buyers Expected future price and income Preferences for the good Productivity/quality of the good Price of output (if good is an input) Quantity supplied (Q S ) depends on Price of the good Price of alternate goods that could be produced Price of inputs: Q S rises if inputs are cheaper Technology: Q S rises if technology improves Expected future price Number of sellers Demand or supply curves shift only if a relevant variable other than the good’s own price changes. Equilibrium price occurs where Q D = Q S BU606 Session 1: Microeconomics Page 2 of 40
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Toronto Purple 2017 Shortage (Q S < Q D ) causes price to rise Surplus (Q S > Q D ) causes price to fall Q1. Supply and Demand Exercise For each market whose product is highlighted in italics indicate the impacts on supply, demand and the equilibrium price and output (15 Marks) P Q 0 P 0 D S Q P Q 0 P 0 D S Q P Q 0 P 0 D S Q BU606 Session 1: Microeconomics Page 3 of 40 1. Medical researchers discover that consumption of blueberries reduce the risk of cancer . 2. New automated equipment introduced in the production of silicon chips . 3. A significant rise in the price of video game consoles affects the market for video games
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Toronto Purple 2017 P Q 0 P 0 D S Q P Q 0 P 0 D S Q P Q 0 P 0 D S Q BU606 Session 1: Microeconomics Page 4 of 40 4. Higher Price for grazing land have an impact on the production of wool 5. A drop in consumer income influences the demand for dry cleaning 6. Declining number of law school graduates affect the supply of legal services
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Toronto Purple 2017 P Q 0 P 0 D S Q P Q 0 P 0 D S Q BU606 Session 1: Microeconomics Page 5 of 40 7. A cost saving technological innovation influences the supply of rice 8. Consumer expectations that the price of turkeys will soon affect the current demand for turkeys
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Toronto Purple 2017 P Q 0 P 0 D S Q P Q 0 D S Q Q2. Demand and supply exercise (15 Marks) How will the demand for eBooks be affected in each of the following situations? a. consumer incomes rise b. the price of eBook readers decreases c. there is a sudden expectation by consumers BU606 Session 1: Microeconomics Page 6 of 40 9. Unusually cold weather in Central America harms the coffee harvest .
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