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Supply and Demand for Skateboards

Hand-Up 2 (Week 5)

Instructions

  • This hand-up is based on Topics 2 and 3 of BUS114.
  • You must submit this hand-up at the beginning of class in Week 5. The hand-up will be returned to you with feedback in Week 6.
  • The hand-up must be hand written.
  • Your best 3 out of 4 hand-ups count for 25% of your final mark.
  • Submissions which are 1) through email 2) typed or 3) handed in late will not be accepted.

Consider the following supply and demand schedules for skateboards.


Price ($)
Quantity Demanded (thousands per month)
Quantity Supplied (thousands per month)

550
60
130

500
65
120

450
70
110

400
75
95

350
80
80

300
85
75

250
90
70

200
95
65

Question 1

State the market equilibrium price and quantity of skateboards. (1 mark)

Question 2

Sketch the market for skateboards in a diagram, making sure to include all appropriate labels. (1 mark)

Question 3

If the supplier of the skateboards decided to restrict the price of a skateboard to be $500, would this result in a shortage or a surplus? Explain why. What is the size of the surplus or shortage? (2 marks)

Question 4

Say Donald Trump was photographed riding one of these skateboards outside the White House. What effect might this have on the demand for these skateboards, and which way would the demand curve shift? (1 mark)

Answer

Q.1.

Ans- 

PriceQuantity DemandedQuantity Supplied
55060130
50065120
45070110
4007595
3508080
3008575
2509070
2009565



At equilibrium, quantity demanded is equal to quantity supplied. 

Qd = Qs

Let us suppose the following to be the demand and supply function respectively-

Qd = a – bP

      = 115-0.1P

Qs = a + bP

     = 20+0.2P

Hence, equilibrium-

Qd = Qs

115-0.1P = 20+0.2P

0.3P =95

P = 32

Equilibrium demand-

Qd= 115 – 0.1 (32) = 112 [approx.]

Qs= 20 + 0.2 (32) = 26 [approx.]

Q.2.

Ans- Following is the diagram

Equilibrium demand

  The enclosed area represented by Op*q* is the market for skateboards.

Q.3.

Ans- 

Qs= 20+0.2P

     = 20 + 0.2 [500]

     = 120

 Qd = 115-0.1P

      = 115 – 0.1 [500]

      = 15

With price being fixed at $500, the price is on the higher side of the chart, so the demand will fall and the supply will be in excess. Therefore, it is a case of surpus.

Q.4. 

Ans- The demand curve would shift to the right.

Right shift in a demand curve is indicative of increase in quantity demanded because of other than price factors. In this case, Donald Trump is a celebrity and if he will be photographed riding one of these skateboards outside the White House, the demand for the skateboard will increase. Economics therefore functions in this particular way. 

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