Ecn 3100 - Principle of Economics

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ECN 3100 PRINCIPLES OF ECONOMICS

ASSIGNMENT 1

NAME：ZHANG ZHE

MATRIC NO.：181186

Name: ZHANG ZHE

Matric No.: 181186

Subject: Principles of Economics ECN (3100)

Question A

1. A change in demand shows how non-price variables cause a shift (change in) of demand to a new demand function or curve; whereas, a change in quantity demanded depends only on a change in the price of the particular good being analyzed.

Six main factors lead changes in changes in demand. They are changes in

1. The prices of related goods – substitutes and complements
2. Expected future prices
3. Consumers’ income
4. Expected future income and credit
5. Population of consumers
6. Preferences and tastes of consumers

Only one factor leads changes in quantity demanded, it is the price of the good.

Name: ZHANG ZHE

Matric No.: 181186

Subject: Principles of Economics ECN (3100)

1. Quantity supplied of a good or service is the amount that producers plan to sell during a given time period at a particular price; whereas, supply refers to the entire relationship between the price of a good and the quantity supplied of it.

Supply is illustrated by the supply curve and the supply schedule; whereas, quantity supplied refers to a point on a supply curve – the quantity supplied at a particular price.

1. A shortage occurs when the price of a good is lower than the equilibrium price which is the price at which the quantity demanded equals the quantity supplied. This leads to the quantity demanded exceeds the quantity supplied, therefore, a shortage occurs.

1. An indifference curve is a line that shows all the combinations of goods among which a consumer is indifferent.

A budget constraint is the boundary between a household can and cannot afford, given its income and the price of goods.

Name: ZHANG ZHE

Matric No.: 181186

Subject: Principles of Economics ECN (3100)

1. To choose the optimal point, first, to find a point of interception on the budget line and the highest attainable indifference curve of the consumer. Second, check if the marginal rate of substitution between the two goods at the point is equals to the relative price of the two goods, then, it will be the optimal point.

Question B

1. There has been an increase in demand.

After the New Year, many people make the decision to eat healthier, more consumers’ preferences lead to an increase in demand for organic food and naturally made meals.

1. There has been a decrease in supply.

Severe weather, such as the drought in the Southeast of the US, causes a less than normal production of organic farm. This leads to a decrease in supply of organic food.