Page 45 - DECO405_MANAGERIAL_ECONOMICS

Managerial Economics

Notes (d) When quantity demanded is more than quantity supplied, the prices tend to fall.
(e) Price floor can be imposed by anyone in the market.
2. Fill in the blanks:
(a) As per law of supply, more goods will be supplied at ............................. price.
(b) The supply curve is ............................. sloping.

(c) There is only one possible price at which quantity supplied is …………. quantity
demanded
(d) In price ceiling, price is purposely held………………..the equilibrium price.
(e) If the market price is lower than the price floor, then ………….. is generated.

(f) ……………. is a position at which there is no surplus or shortage in the economy.

3.6 Review Questions

1. Using demand and supply analysis explain why the government might wish to control
the price of rice below the market equilibrium price?

2. Using the supply analysis, describe the recent increase in food items worldwide.
3. Over time, the demand for wheat has shifted to the right. Why, do you think, it has
occurred?

4. Analyse the impact of taxes and subsidies on the supply of cigarette and LPG
5. Assume yourself as a manager of any FMCG firm. In what ways supply analysis is important
for you?
6. Consider the following simplified demand-supply functions

Demand: Q = 200 – 2P
Supply: Q = 20 + 4P
What are the equilibrium price and quantity sold? ( Hint: Just equate demand and supply
equations)

7. Given the data below showing the demand and supply of X in a given market:

Price at X per ton ( ) 1 2 3 4 5
Demand at X per period ( ) 25 16 12 10 9
Supply at X per period (Tons) 3 3 12 14 29

(a) What would be the free market price of X?
(b) What would be the price if demand increased by 4 tons at every price?
(c) What would be the effect of a government’s imposing of a minimum price of 5 per
ton in the original situation?
8. Discuss the concepts of price ceiling and price floor with examples.

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