Demonstrate, using supply and demand analysis, the effect on the equilibrium price and quantity of new hybrid automobiles when the following occurs. Using graphs similar to the notes in Week One, describe the change in the equilibrium price and quantity, and explain your answer. Is the equilibrium price higher or lower, or is the change indeterminate? Is the equilibrium quantity higher or lower, or is the change indeterminate?
a. Incomes increase
b. Interest rates decrease
c. The price of batteries used in the production of these vehicles decreases
d. price of gasoline decreases
Determine if the demand for the following products is price elastic or price inelastic, and explain your answer.
a. Box of cereal sold in a grocery store
b. Gasoline as a commodity
c. Gasoline sold at a local gasoline station
d. Fast food sold at a restaurant
e. Hotel rooms for people planning a vacation
f. Hotel rooms for people on business to meet an important client
g. Clothes sold in a discount retailer
Identify three types of market systems, and provide an example of each system.
Perfect competition - This is when there are many buyers and sellers for a particular product, the product is similar looking. The cost of investment is small and the product is easy to produce (For example: farming and agricultural products)
Monopoly - There is a single seller with no close substitutes, and there is lots of control over the goods price (For example: electric company)
Oligopoly - This market system is dominated by a few sellers. The products are high cost investments causing difficulties for new companies to join. The products are identical or slightly different (usually advertisements set the differences) (For example: Airlines)
Define the law of demand and the law of supply. Provide an example for each law.