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Analyzing Market Dynamics, Opportunity Costs, and Comparative Advantages in Economics

Analyzes market dynamics, opportunity costs, and comparative advantages.

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    Analyzing Market Dynamics, Opportunity Costs, and Comparative Advantages in Economics 1. Based on the information provided for the market for video games, answer the following questions. PRICE Q DEMANDED Q SUPPLIED $50 5 9 $45 7 7 $40 9 5 $35 11 3 $30 13 1 a.) Draw and properly label the demand and supply graphs (this means you must label the axes and any lines you include on the graph). Answer : Price Q demanded Q supplied 50 5 9 45 7 7 40 9 5 35 11 3 30 13 1

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    b.) What is the equilibrium price and quantity? Answer : Equilibrium occurs at a point where quantity demanded equals quantity supplied. From the table above, we note that this happens when price is $45 and quantity is 7. So, equilibrium price is $45 and equilibrium quantity is 7 . Graphically, it is the situation where demand curve intersects supply curve as shown in the figure above. Now, assume that a new government report claims that video game play stimulates the brain. c.) What will this do to the demand curve? Of the available list of things in the text that causes a change in demand, which best fits here as the cause of the demand shift? Answer : Since the report claim that video game play stimulates the brain, there will be increase in the demand for video game, causing demand curve to shift rightward. Out of available list of things in the text that causes change in the demand, it is the factor known as ”change in taste and preferences” that would best fit here as the cause of the demand shift. Because of health benefit associated with video game, people will prefer to buy more of video game, causing their demand to increase and hence demand curve to shift rightward. d.) What will happen to the equilibrium price and quantity? Answer : Because of rightward shift in the demand curve, there will be increase in both equilibrium price as well as equilibrium quantity as shown in figure1 below:

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