Problems Set

Problems Set




Problems Set

Question 1

The price of Samsung Smartphone is set to decrease for the North American markets due to reduced manufacturing costs brought about by availability of chipping components. This statement is an example of an answer to obtaining the Big Three Questions as addressed in Economics. The Samsung Smartphone is the product in question as it answers the question; what is being produced? North America markets represent the target for the products as it addresses the question; to whom is the product being produced? The final part of the statement on manufacture describes how the product will be produced, that includes the process.

Question 2

Price                                                              Supply                                    New Supply    








                                                                                                                                  New Demand

                                            Q1                     Q2       Demand


The above chart shows the change in quantity and price of the iphone 5 market according to the respective demand and supply variables. The intersection points of P1 Q1 and P2Q2 represent the equilibrium price and its corresponding quantity. The equilibrium represented is devoid of any external forces. When the price is high at P1, the quantity at Q1is relatively lower as compared to increased quantity of Q2 while the price is lowered at P2. If the taxes are increased, the phone will become slightly expensive forcing the prices to increase and the effect will result into decrease of the quantity. This is depicted by the intersection of P1 and Q1 representing higher cost of the product and lower supply.

Question 3


Housing                                                                                                             B



                                                                             D                                   F                         G




            The production possibilities frontier shown above represents the margins of housing cost versus cost of food within duration. Feasible combinations of the two costs are represented by points F and E of the curve. Point F shows that when the cost of housing reduces it translates to an increase in the cost of corresponding housing. At point E, the cost of housing increases and the result is the lower cost of food production. When the external forces do not affect the variables of housing cost and that of food, equilibrium is achieved. This refers to either increase or decrease in the cost of housing. The cost of food should respond to the above changes. If there is a possibility of prolonged drought, the significant change will be increase in the cost of food while that of housing will decrease.

Question 4


                                     D                                                               S







            The supply and demand curve for cake is represented in the above diagram. The letter D represents the demand curve while letter S represents the supply curve. The equilibrium price for the cake is denoted by EP. The equilibrium shows that there are no external forces that interfere with the pricing and quantity variables of demand and supply of the cake production. When the market demand curve is given to be Qd = 200-P while that of the market supply curve is given as Qs = 50+2P, after substitution, the market equilibrium achieved is 150 while the corresponding quantity of the cake is 350 units.

Question 5

            There are four laws of supply and demand. The first law states that when there is an increase in demand, the equilibrium price increases if the supply is kept constant causing a shortage in the market. The second law states that when the demand decreases, the equilibrium price obtained decreases when the supply is kept at a constant in the market since a surplus occurs. The third law states that when the demand is maintained at a constant, the equilibrium price is lower due to increase in the supply that causes a surplus to occur. The fourth law states that if the demand is kept at constant while there is reduction in the supply, the equilibrium price is increased due to a shortage occurrence. In the four situations, the constant conditions for a shortage occurrence are achieved when the supply is kept at a constant rate while the equilibrium price is low. When the demand is maintained, a surplus is achieved as the equilibrium price increases.




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