Midterm Project
Sample
Question 1: Create a hypothetical market (make a table showing values for Quantity Supplied, Quantity Demanded and Price). Any values you like and make sense! Make at least 10 data points.
Market is a mechanism where buyers and seller interact and decide the piece also exchange the products. There are two major factor we can consider when we talk about market which is demand and supply. Quantity supply is how much producer want to produce in certain price. As price goes up quantity supply goes up. But for Quantity demand is how much the buyers want to buy at certain price. As price goes down the quantity demand goes up. For this project, I choose a brand call MZ shoes which is a shoe company. The quantity demand and quantity supply are provided below for that company:
Price(P)
Quantity Demand (Qd)
Quantity Supply (QS)
40
300
0
60
280
20
80
260
40
100
240
60
120
220
80
140
200
100
160
180
120
180
160
140
200
140
160
220
120
180
240
100
200
260
80
220
280
60
240
Quantity Demand Vs Price
400
350
300
250
200
150
100
50
0
0
50
100
150
200
250
300
350
Quantity Demand
Quantity Supply Vs Price
400
350
300
250
200
150
100
50
0
0
50
100
150
200
250
300
350
Quantity Supply
Price
Price
Quantity Supply and Demand Vs Price
400
350
300
250
200
Supply
150
Demand
100
50
0
0
50
100
150
200
250
300
350
Quantity
Price
Question 2: Write the supply & demand equations showing the calculated slope and intercept. Comment on the two equations and on the values of the slope and intercept. What do they mean?
From the table I can calculate the equation for supply and demand.
We know that the Qd = a – bP. Where Qd represent quantity demand and ‘a’ is the intercept and ‘b’ is the slope and ‘P’ is the price.
Using two point for demand (40,300) and (60,280) we can calculate the equation for the demand.
Slope (b) =
Δ???????? ??????
Δ?????
=280−300
60−40
= −20
20
= -1
For equation for line, we know that the formula is:
(Qd – Qd(1) ) = b (P – P1)
(Qd –300) = -1 (P – 40)
(Qd –300) = -P + 40
Qd –300 + 300= -P + 40 +300
Qd = 340 – P
The intercept for the demand equation is 340 and the slope is -1. This means that when price goes down to zero the quantity demand for the product is 340 unit. Slope is -1 means that when price change by 1 and quantity demand decrease by 1.
For Supply:
We can take two values from the table which is related to Quantity supply and price. For example, we can take (80,40) and (60,20)
Slope (b) =
Δ???????? ??????
Δ?????
=40−20
80−60
= 20 = 1
20
For equation for line, we know that the formula is:
Using one point we find the equation for the Supply. Let us take the point (80,40):
(Qs – Qs (1)) = b (P – P1)
(Qs – 40) = 1 (P – 80)
(Qs –40) = P – 80
Qs – 40 + 40= P – 80 +40
Qs = P – 40
The intercept for the Supply equation is -40 and the slope is 1. The intercept = -40 means that the quantity supply will be -40 when price is equal to zero. Slope is 1 means that 1 dollar change in price will change 1 unit of quantity supply.
Even though the data create two linear lines for demand and supply graph but in real life the graph will be little curve looking. Because I made a hypothetical market, I choose the data is little offline to find the exact equation. Intercept means to me that when price is zero what is the quantity supply in the market and how much will be the quantity demand in the market. Even though the price of a product fall to zero there should be very little supply and huge demand for a
Quantity Supply and Demand Vs Price
400
350
300
250
200
Demand
150
Interception for
Demand Equation (0,340)
Supply
100
50
Interception for
Supply Equation (0,-40)
0
-100
-50
0
50
100
150
Quantity
200
250
300
350
400
Price
product. Because we are looking at the hypothetical market, the number is little higher for supply and smaller for demand. On the other hand, slope represent how much quantity demand or quantity supply will change if price change one unit. For example, quantity supply will change 1 if price of a product change 1. In our example if shoes price is gone up by 1 dollar then the supply will increase by 1unit .
Question 3: List the demand determinants and supply determinants and show how thy might shift the supply and demand functions. Show graphically the impact on the equilibrium price for more & less demand and more & less supply.
Even though supply quantity and demand quantity are directly affected by price, but demand and supply have few other determinants which will shift the demand and supply curve left or right. Demand determinants are follows:
1) consumer income
.
.
.
.
..
.
.
.
Demand determinants:
Consumer Income: increase or decrease in consumer income have an impact on the demand of the goods. There are two types of goods which is inferior good and normal good. As income increase demand of inferior goods are decease and if income decrease the demand for inferior goods increase. The normal goods demand increases or decrease with increase or
decrease of income. Example of inferior good can be fast food or old model car and example for normal good can be uber ride or luxury yacht.
Consumers preferences: Consumer preference is what a consumer like or what is consumer taste or desire for a product. If consumer …..
.
.
.
.
.
.
Supply determinants:
Number of supplies: The number of suppliers
…..
.
.
.
.
.
.
.
.
Increase and Decrease Demand
300
250
200
Higher Demand
Supply
150
Demand
Lower Demand
Increae Demand
Decrease Demand
100
50
0
0
50
100
150
200
Quantity
250
300
350
400
Price
Question 4: In the market that you have created assume any possible price floor and any possible price ceiling. Show in a graph the impact of the price floor and in another graph the impact of the price ceiling.
Price floor is …
Price Ceiling
400
350
300
Price Floor
250
Demand
200
Price Ceiling
150
Supply
Price Floor Price Ceiling
100
50
Impact of price ceiling
create shortage
0
0
50
100
150
200
Quantity
250
300
350
400
Price
Question 7: Add a column to the initial table showing the elasticity of demand with respect to price at each price level. What is happening to the elasticity (increasing, decreasing, constant?) as price gets lower? Why? According to the elasticity of demand at the equilibrium, what would be more profitable to the supplier; to raise the price or to lower it. Why?
Elasticity is a very important topic in economics. Elastic or inelastic means how responsive consumers are to a product if price change of a product.
There are five different elastic conditions:
Elasticity = 0 => which means perfectly inelastic.
…..
.
.
.
.
The determinants for the price elasticity of the demand are;
1) Substitutes …
2) .
3) .
4) ..
To calculate elasticity, .
.
.
.
.
Price(P)
Quantity Demand (Qd)
Quantity Supply (QS)
(Q?2−Q?1)
Elasticity of Demand =| Q?1 |
?2−?1
?1
40
300
0
60
280
20
0.133
80
260
40
0.214
100
240
60
0.308
120
220
80
0.417
140
200
100
0.545
160
180
120
0.7
180
160
140
0.889
200
140
160
1.125
220
120
180
1.43
240
100
200
1.83
260
80
220
2.4
280
60
240
3.25
By using the Excel, I was calculated the elasticity of demand. As we move downward, the value for the elasticity decreases. So, the demand increases and price decrease, the elasticity increase. Price goes lower elasticity decrease because the denominator increases and as price goes down the necessity for the product increase for the consumer. More necessary the product get less elastic the product is, and product get inelastic. Because in the equilibrium price the elasticity of the product is 1.26. So, the product is elastic, I will decrease the price which will lead to more profit for the supplier. For example, if we calculate the revenue for 10 dollars smaller and higher value from the equilibrium price which is 190. If we calculate revenue for 200 dollars, we get revenue = (200*140) – (190 *150) = – 500 and for 180 dollar the revenue= (190*150) – (180*160) = 300. So, we can see the revenue increase as we decrease the price.
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