# Question 2 Suppose there is a technological advance that reduces the cost of producing computer chips. Use supply and demand curves to analyse the…

Question 2

Suppose there is a technological advance that reduces the cost of producing computer chips. Use supply and demand curves to analyse the effects in the following markets:

a. market for computers. [5 marks]

b. market for computer software. [5 marks]

c. market for typewriters. [5 marks]

Question 4

The demand for pocket calculators is given by the function: P = 6 – 0.5Qd; and the supply is given by the function: 6 = Qs – P; where = Qd = quantity demanded, Qs= quantity supplied and P = price.

a. What is the equilibrium condition? [1 mark]

b. Solve for the equilibrium price and quantity in this market. [5 marks]

c. Calculate the demand and supply for calculators if the market price is \$15 per barrel. What problem exists in the economy? What would you expect to happen to price? [4 marks]

d. Calculate the demand and supply for calculators if the market price is \$4 per barrel. What problem exists in the economy? What would you expect to happen to price? [4 marks]

Question 5

When the price of a plane ticket on Virgin Atlantic rises from \$200 to \$250, the number of business travellers per month falls from 2000 to 1900. At the same time, the number of vacationers per month falls from 800 to 600.

a. Calculate the price elasticity for (i) business travellers and (ii) vacationers. [6 marks]

b. State whether the elasticities for (i) business travellers and (ii) vacationers are elastic or inelastic. [2 marks]

c. Analyse why there is a difference between price elasticities for business travellers and vacationers. [3 marks]