1.Assume the following:a.The supply schedule is given from P = 2 + 3Qs b.The dem
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Question
1.Assume the following:a.The supply schedule is given from P = 2 + 3Qs b.The demand schedule is given from P= 10 - Qd Find the equilibrium price & the equilibrium quantity. Draw a diagram to account for equilibrium price, equilibrium quantity, slope, etc. 2.Evaluate the following statements using graphical analysis. Provide a brief narrative explanation of your graph to support your evaluation. Make sure the axes and curves in your graphs are properly labeled.a.“When demand for home heating oil increases, a shortage of heating oil will occur.” b.“A decrease in the supply of random access memory (RAM) chips for personal computers causes a shortage of RAM chips.” 3.Several economics faculty members were standing in line in the student union cafeteria for lunch. One was heard to say, “I sure wish the union would raise their food prices.” The others agreed. What in the world would motivate such a wish? 4.Rising jet fuel prices recently led most major U.S. airlines to raise fares by approximately 15 percent. Explain how this substantial increase in airfares would affect the followinga.The demand for air travel. b.The demand for hotels. c.The demand for rental cars. d.The supply of overnight mail. 5.Visualize algebraically and diagrammatically the following: complementary goods, substitute goods, normal goods, and inferior goods. 6.Can information asymmetry be used for demand and supply applications??? (Use also examples derived from the health sector). 7.Familiarize yourselves with the “market for lemons.” (Use also examples derived from the health sector). 8.What are Giffen Goods? What are Veblen Goods? Do they defy the law of demand? Explain. 9.What are the “snob” and “bandwagon” effects? 10.Ponder the following: Has recent economic analysis changed to account for the human element? How? Explain. Has behavioral economics and cognitive economic analysis impacted our understanding of economics?
Explanation / Answer
3. Several economics faculty members were standing in line in the student union cafeteria for lunch. One was heard to say, “I sure wish the union would raise their food prices.” The others agreed. What in the world would motivate such a wish?
As the faculty members were made to stand In the line, rise in the food prices would lead to decrease In demand and hence the line would become short. This factor motivated the faculty to say “I sure wish the union would raise their food prices”.
8. What are Giffen Goods? What are Veblen Goods? Do they defy the law of demand? Explain.
A Giffen good is a good for which demand increases as the price increases, and falls when the price falls. It goes against the normal theory of demand and supply which states that quantity demanded for a product falls as the price increases. A Giffen good has an upward-sloping demand curve, which is opposite to the fundamental law of demand which has a downward slope for the demand curve. A Giffen good is typically an inferior product that does not have easily available substitutes.
Veblen goods is a good for which demand increases as the price increases, because of its exclusive nature and appeal as a status symbol. A Veblen good has a similar has an upward-sloping demand curve like the giffen good. However, a Veblen good is generally a high-quality, coveted product, which is in contrast to a Giffen good which is an inferior product that does not have easily available substitutes. As well, the increase in demand for a Veblen good reflects consumer tastes and preferences, unlike a Giffen good, where higher demand is directly attributable to the price increase.
Yes both the giffen good and Veblen good defies the natural law of demand which states that quantity demanded for a product falls as the price increases.
9. What are the “snob” and “bandwagon” effects?
The snob effect is a phenomenon referring to the situation where the demand for a certain good by individuals of a higher income level is inversely related to the demand for the good by individuals of a lower income level. The "snob effect" contrasts most other microeconomic models, in that the demand curve can have a positive slope, rather than the typical negatively sloped demand curve of normal goods.
The bandwagon effect is a phenomenon whereby the rate of uptake of beliefs, ideas, fads and trends increases the more that they have already been adopted by others. In other words, the bandwagon effect is characterized by the probability of individual adoption increasing with respect to the proportion who have already done so.
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