# Economics problems

8 August 2016

What is the effect on the equilibrium price and equilibrium quantity of orange juice if the price of apple juice decreases and the wage rate paid to orange grove workers increases? Apple juice and orange juice are substitutes for consumers, so the fall in the price of apple juice decreases the demand for orange juice. The demand curve for orange juice shifts leftward. The increase in the wage rate paid to orange grove workers raises the cost of producing orange juice. The supply of orange juice decreases and the supply curve of orange juice shifts leftward.

The net effect of these events decreases the equilibrium quantity but has an undetermined effect on equilibrium price. If supply decreases by more than the demand, the shift in the supply curve is greater than the shift in the demand curve and the equilibrium price rises. If demand decreases more than the supply, the shift in the demand curve is greater than the shift in the supply curve and the equilibrium price falls. 3. What is the effect on the equilibrium in the orange juice market if orange juice becomes more popular and a cheaper robot is used to pick oranges?

## Economics problems Essay Example

Because orange juice becomes more popular, demand increases and the demand curve for orange juice shifts rightward. The cheaper picking robot lowers the production costs of orange juice, so the supply of orange juice increases and the supply curve of orange juice shifts rightward. The equilibrium quantity increases. But the effect on the equilibrium price is ambiguous. If the change in supply is greater than the change in demand, the shift in the supply curve is greater than the shift in the demand curve and the equilibrium price falls.

If the change in demand is greater than the change in supply, the shift in the demand curve is greater than the shift in the supply curve and the equilibrium price rises. The table shows the demand and supply schedules for greeting cards. Use the table to answer exercises 4 and 5. 4. If the price of a greeting card is \$7. 00, describe the situation in the market. Explain how market equilibrium is restored. At the price of \$5. 00, the quantity supplied equals the quantity demanded. At a price of \$7. 00, the quantity demanded is 120 greeting cards and the quantity supplied is 160 greeting cards.

There is a surplus of 40 greeting cards a week and the price falls. As the falls, the quantity demanded increases, the quantity supplied decreases, and the surplus decreases. The price falls until the surplus disappears. The market equilibrium occurs at a price of \$5. 00 and 140 cards a week so the price falls to \$5. 00 a greeting card. 5. If new audio greeting message (sent via cell phone) becomes popular and at the same time the cost of producing greeting cards falls, set out the three-step process of analysis and show on a graph the adjustment process.

How does the price and quantity of greeting cards change? The new audio greeting message affects the demand for greeting cards. The demand for greeting cards decreases because greeting cards and audio greeting cards are substitutes. The demand curve for greeting cards pads shifts leftward, from D0 to D1 in Figure 4. 6. Simultaneously the fall in the cost of producing a greeting card affects the supply. The fall in the cost of producing greeting cards increases the supply and the supply curve shifts rightward, from S0 to S1 in Figure 4. 6. At the initial price of a greeting card, \$5. 00 in Figure 4. 6, there is a surplus of 60 greeting cards per week. The surplus forces the price lower, so the equilibrium price of a greeting card falls, to \$2. 00 in the figure. The effect on the quantity of greeting cards, however, is ambiguous. If the magnitude of the decrease in demand exceeds that of the increase in supply, the quantity of greeting cards decreases. If the magnitude of the increase in supply exceeds that of the decrease in demand, the quantity increases. And, if the magnitudes of the changes are the same, as in Figure 4. 6, the quantity of greeting cards does not change.

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