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

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Analyzing Market Dynamics, Opportunity Costs, and ComparativeAdvantages in Economics1. Based on the information provided for the market for video games, answer the followingquestions.PRICE Q DEMANDED Q SUPPLIED$50 5 9$45 7 7$40 9 5$35 11 3$3013 1a.) Draw and properly label the demand and supply graphs (this means you must label theaxes and any lines you include on the graph).Answer:PriceQ demandedQ supplied5059457740953511330131

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b.) What is theequilibrium price and quantity?Answer:Equilibrium occurs at a point where quantity demanded equals quantity supplied. From thetable above, we note that this happens when price is $45 and quantity is 7. So, equilibriumprice is$45and equilibrium quantity is7.Graphically, it is the situationwhere demandcurve 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 thetext thatcauses 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 thedemand for video game, causing demand curve to shiftrightward.Out of available list of things in the text that causes change in the demand, it is the factorknown as ”change in taste and preferences” that would best fit here as the cause of thedemand shift. Because of health benefit associated with video game, people will prefer to buymore of video game, causing their demand to increase and hence demand curve to shiftrightward.d.) What will happen to the equilibrium price and quantity?Answer:Because of rightward shift in the demand curve, therewill be increase in both equilibriumprice as well as equilibrium quantity as shown in figure1 below:

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