ECON MICRO
5th Edition
ISBN: 9781337000536
Author: William A. McEachern
Publisher: Cengage Learning
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Chapter 4, Problem 3.4P
To determine
The reason the firm increases the quantity supplied when the price of the good increases.
Concept Introduction:
Law of supply states that as the price of the good, increases the quantity supplied of the good increases and vice-versa, other things remaining same.
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Price ($/cup)
3.5
3
88
2.5
2
1.5
1
0.5
0
10 20
Original Supply
New Supply
New Demand
Original Demand
30 40 50 60 70 80 90
Quantity (cups/hour)
The figure above refers to the market for coffee. What might cause shift from the original supply
curve to the new supply curve? Check all that apply.
An increase in the price of tea (a substitute for coffee).
An expectation that coffee prices will fall in the future.
A decrease in the price of coffee beans.
A storm in that wipes out a large part of the coffee crop.
A new technology that reduces the cost of making coffee.
(a) Due to the increase in the demand for video games, the equilibrium price of video games increases by 10 percent, and the equilibrium quantity increases by 5 ercent.
Is the price elasticity of demand for video games elastic, inelastic, or indeterminate? Explain your answer (with calculation if possible).
Is the price elasticity of supply of video games elastic, inelastic, or indeterminate? Explain your answer (with calculation if possible).
(b) Suppose Marcus produces chocolate with two inputs: factory and labor. If the workers become more productive with better training, state whether the average fixed cost, average variable cost, average total cost, and marginal cost will rise or fall?
(c) After one month of operation, OU Café determined to shorten its business hours and close on weekends. What costs, fixed or variable, should OU Café have considered when it made the de
Plot the supply curve from the supply schedule information provided.
Price
Quantity Supply (Qs)
1
0
2
3
3
4
4
5
5
6
(d) What else do you think will happen?
(e) What happens if other determinants change?
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