econ 302 ass 2

econ 302 ass 2 - Christine Drews Econ 302 Toossi Section 2...

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Christine Drews Econ 302 – Toossi Section 2 Chapter 2 Homework 5/7/2009 Questions for Review 1. Scarcity is the concept that resources are limited compared to our unlimited desires. Shortage occurs when the current quantity demanded exceeds the current quality supplied of a given product. Therefore, a shortage is pure evidence that scarcity exists. Otherwise, there would be no need for the concept of supply and demand, because everyone’s desires would be fulfilled. 2. If a good is not scarce, then both the supply and demand curves would, in a sense, have no need to exist, regardless of the usefulness of the good. They would lie either at the price = 0 mark, or possibly even a negative price. The two curves would lie along the axes of the graph, as there is no price, and an unlimited supply. The only explanation for a commodity to have a positive price is that it is scarce. If the commodity was unlimited, there would be no incentive for the market to be willing to pay a price for it, also leaving no incentive for the suppliers to charge a price for it. Air would be an example of one such commodity. There is no scarcity of air, and thus there is no market for which people are willing to pay for air. This being said, if a price is positive, it means that it is in fact limited and there lies incentive for it to be supplied and demanded for a certain amount of money. Problems 2. a) At price = $35, 5 units will be traded. This will keep the consumers dissatisfied because their ideal quantity demanded is 7 units. At price = $14, 3 units will be traded. This will keep the consumers dissatisfied again because their ideal quantity demanded is 28 units. b) P’ = 2Qs, which means that P = Qs^2 Q^2 = 42 – Q Q^2 + Q – 42 = 0 (Q + 7)(Q – 6) = 0 Q = -7, or Q = 6 Since you can not have a negative number of DVDs, the equilibrium quantity of DVDs is 6. P = 42 – Q
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econ 302 ass 2 - Christine Drews Econ 302 Toossi Section 2...

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