Assessment 2 – Economics Assignment Solution

 ASSESSMENT 2 – PART 1 – DEMAND, SUPPLY AND EQUILIBRIUM

1. Market for Normal potatoes. Sweet potato crops are wiped out in the Queensland floods.

The condition that is applied on this scenario is Substitution where the price of the sweet potato is increased that will indirectly increase the demand for Normal Potatoes. The graph that indicate this scenario is A

1. Market for Gold. Several companies set up operations to find gold following the growth in gold prices. 

The condition that is applied on this scenario is More firms where producers are setting up more businesses for gold as an increase in the price of gold. The graph that indicate this is D.

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1. (a) Assume Mr Gazelakis’ income is $1,000 a week and he has the demand schedule in the table below for goods X and Y. The demand schedule for good X is shown in columns 1 and 2 and for good Y in columns 4 and 5 respectively. Assume the price of X is $3 and the price of good Y is $9.50.

1. How much X and Y will Mr Gazelakis buy? 

Mr Gazelakis will buy 30 of X and 5 of Y

1. Suppose that as a result of a $100 weekly pay rise, Mr Gazelakis’ quantities demanded for good X become those shown in column 3 and for good Y those shown in column 6.
2. How much X and Y will he buy now, assume ceteris paribus? 

Mr Gazelakis will buy 20 of X and 7 of Y

1. What type of good is X? Explain. 

The good X is an inferior good as price increases, quantity demanded decreases

1. What type of good is Y? Explain. 

The good Y is a normal good as price increases, quantity demanded decreases.

1. Consider now another scenario, goods A and B. The price of good A rose and as a result, the demand for good B also rose. What type of goods are A and B? Explain 

The goods A and B are substitutes good as the basic definition of substitutes good are that if price of one good increase it will increase the demand for another good.

1. In July 2018, vandals in Farmland poisoned ten million tomato seedlings by putting herbicide into the irrigation water. The seedlings were killed. These seedlings would have produced many of the tomatoes that were planned to be sold in Farmland in October 2018. For each of your answers below, identify the condition (determinant) of demand and/or supply and the impact on the equilibrium price and equilibrium quantity of the product.
2. Using a demand and supply diagram, consider the effect of the poisoning of the tomato seedlings on the market for tomatoes in Farmland in October 2018.

The above diagram states that due to Weather (determinant) the quantity of tomato crops decreases as well as the price. This shifted the supply curve to left that indicates a decrease in the supply of the agricultural good.