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# Assignment 3 Demand and Supply The use of E-Books has

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Assignment 3 Demand and Supply The use of E-Books has
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Assignment 3 Demand and Supply The use of E-Books has
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Date Created: 01/06/16
Solution ­ 1 Demand \$20 \$15 \$10 Demand Price \$5 \$0 0 5000 10000 15000 20000 Quantity The law of demand states that other things remaining constant, as the price of a commodity  increases, the quantity demanded. Therefore there is an inverse relationship between the price  and quantity demanded. This implies that the demand curve is downward sloping. This is  consistent with our diagram. Supply \$20 \$15 Price \$10 Supply \$5 \$0 4,000 6,000 8,000 10,000 12,000 Quantity The law of supply states that other things remaining constant, as the price of a commodity  increases, the quantity supply also increases. Therefore there is a direct relationship between the  price and quantity supplied. This implies that the supply curve is upward sloping. This law holds  good in our graph also. Solution ­ 2 Equilibrium \$20 \$15 \$10 Supply Price Demand \$5 \$0 0 5,000 10,000 15,000 20,000 Quantity The equilibrium price and quantity is determined by the intersection of the demand and  supply curve. In the above diagram we can see from the intersection point of the two curves  that the equilibrium price is \$10 and the equilibrium quantity is 8000. Solution ­ 3 Now, let us assume that the government imposes a price floor of \$12 in the E­Book market.  Price floor implies that there is a downward restriction on the price. The price of the product  cannot fall below the pre specified level.  From the above figure, we can see that after imposition of the price floor, the quantity demanded  falls to 7000, while the quantity supplied rises to 8500. Therefore, there is an excess supply of  1500 units. Solution ­ 4 Now, price ceiling is an upward restriction on price. No firms can charge a price greater than  \$6 in this case. From the above figure, we can see that after imposition of the price ceiling at \$6, the quantity  demanded rises to 12000, while the quantity supplied falls to 6000. Therefore, there is an excess  demand of 6000 units. Solution ­ 5 Now, if the price of E­Readers (used with E­Books) drops by fifty percent, then the demand  for e readers will increase. Now, E­readers and e­books are complementary goods. Therefore, an increase in the demand for e readers will also increase the demand for e books.  This is  shown in the following figure. \$20 \$18 \$16 \$14 \$12 Price \$10 \$8 Demand \$6 Newdemand \$4 \$2 \$0 0 5000 10000 15000 20000 Quantity

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