Econ110A-111 ASSIGNMENT

DATE:___05__/_10___/___2022_____
D/ M/ Y

MUST MATCH YOUR NAME AS LISTED ON THE onQ SITE)

SURNAME (FAMILY NAME), FIRST NAME STUDENT #

_Goyal, Aaryashur, 20329959 ___________________________________

__________________

Course:_____ECON110A_________

Section:___001___________

Assignment #:__1_______
1. A1-1. Since demand curves are downward sloping, we would never see an increase in price
accompanied by an increase in the equilibrium quantity traded in a market.

Uncertain
- The following statement is uncertain due to the law of demand. As the law of
demand states, as the price of good increases the quantity demanded by the
consumers tends to reduce. The downward sloping demand curve shows a negative
relationship between the price and quantity demanded. However, as we
look at the graph the right ward shift in the demand curve from
D1 to D2, has shifted the equilibrium from EQ1 to EQ2. This
shift has increased the price from P1 to P2 as well as the
quantity demanded has increased from Q1 to Q2. Therefore,
we are uncertain of this statement as the demand curve is a
negative slope which means that the price and quantity will
always be inverse, whereas an increase in demand is leading
to an increase in price as well as the quantity demanded.

2. A1-2. An increase in consumer incomes will lead to an

increase in the prices of all grocery store items.

Uncertain
- The following statement is uncertain as there will an increase in a few grocery store
items if there is an increase in consumer income. As the income increases the demand
for normal goods increases as the consumers do have the ability of spending more
money on the goods and services. However, as the income increases there is a fall in
the demand of inferior goods as the consumers tend to prefer good quality products.
Due to which, the statement cannot be justified because all grocery goods prices are
not going to increase. There will only be an increase in the price of normal good items
and not inferior goods. For example, the price of oil is going to increase with income
whereas the price of canned goods which is an inferior good is not going to increase.

As the income increases the demand for Normal goods

increases that results in a shift of the demand curve to the right.
As the demand tends to increase the suppliers increase the
prices for normal groceries and. As we see the graph as the
income rises the quantity demanded by consumers increases
from Q1 to Q2. Such as, the price of the grocery items tends to
 increase from P1 to P2. However, inferior goods are going to decrease in demand
from D2 to D1 and prices decreasing from P2 to P1.

3. A1-3. Theoretically, taxes on the sales of sugary soft drinks are perfect; they reduce
consumption dramatically and raise a lot of revenue. [Hint: Assume a per-unit tax and a
horizontal supply curve for soft drinks.]

True

- Goods are taxed to both decrease consumption and generate income for the
government. As the supply is horizontal it is perfectly elastic in nature which means
that the price is not affected with the quantity demanded. The graph shows that the
soft drink perfectly elastic supply curve rises from S to S+tax. Soft drink consumption
has decreased as a result of this shift, which lowers the quantity demanded from Q1 to
Q2. Whereas the price has increased from P1 to P2. The tax
implied on sugary drinks is reducing the quantity demanded
by the market, thus we can say this statement is correct.
Furthermore, the tax suggested by the increase in prices has
generated income for the government in the form of the
difference between P2 and P1, which is tax revenue. Taxes
on sugary beverages are an excellent idea since they reduce
demand while also generating significant tax revenue for
the government. However the producers of sugary drinks
are going to be in loss as they will have less production and
will also have to pay for the tax.

4. If the demand function for chicken is given by Qc = 100

– .25Pc + 10Pt + 100M, where Qc is the quantity of chicken demanded, Pc is the price of
chicken, Pt is price of turkey, and M is the average income of consumers, then we can
conclude that chicken has a downward sloping demand curve, is a substitute for turkey,
and is a normal good.

(True)

- Chicken does have a downward sloping demand curve that portrays that as the price
of chicken increases the quantity demanded will decrease. As we look at the non-price
determinates for demand we can observe that the consumers will tend to switch to a
substitute good such as Turkey. Increasing average income of consumers will affect
the quantity demanded for chicken as there are other factors such as the price of
chicken. As the consumers shift to Turkey which is comparatively cheaper than
chicken, it will increase the demand for Turkey, hence a fall in the quantity demanded
of chicken. Chicken is a normal good as it is related to consumers income. As the
income increases the demand for chicken will increase. whereas as the income
reduces the demand for the substitute good, Turkey will
increase.

The rise in the price of chicken from P1 to P2

will lead to a drop in the quantity demanded
from Q1 to Q2. This will directly affect the
demand for turkey as it’s a substitute good leading to a right ward shift in the demand for
Turkey, which can be seen on graph 2.

5.
a)

−35+35 P=100−10 P
35 P+10 P=100+3545 P=135
P=3QS=−35+35 ( 3 )QS=70 units
QD=100−10 (3 )QD=70 units

The calculation above

shows that the price
equilibrium is 3 and
quantity equilibrium is 70 units. This shows that the Demand and Supply linear graph
shall meet at 70 units and at price 3.

P ∆Q
b) PED= ×
Q ∆P

3 10
PED= × PED=0.42The PED for Quantity demanded; QD=100-100P, PED
70 1
=0.42.

This means that the PED is inelastic as it is less than 1 and the good is a necessity.

P ∆Q 3 35
PES= × PES= × PES=1.5 The PES for Quantity supply; QS= -35+35P,
Q ∆P 70 1
PES=1.5

This means that the PES is elastic in nature as the PES is greater than 1.
c)
Yes the policy does create a DWL, which has been shown by the green area in the
graph.

60=−35+35 PP=2.7160=100−10 PP=4

1
DWL= ×10 × 1.29 DWL=6.45
2

The dead weight loss of 6.45, is the difference between

the production and consumption in the market due to
the application of the Quota applied by the
government. The dead weight loss was created as the
new price is now $4 and the new quantity of output is 60. It is a cost that the society
has to be face due to the shift away from the equilibrium leading in a deadweight loss.

d)

Total Quota value: ( 4−2.71 ) × 60=77.4

77.4
Value of unit of Quota: =1.29
60

This can also be said that the value of a unit of Quota is the difference between the
Price of demand – price of supply, (4-2.71) = 1.29.