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Econ107-02 Homework3 Yusuf Aksakal

This document is a homework assignment that discusses the demand curve for fresh grapes. It includes: 1) A graph of the demand curve for fresh grapes. 2) An explanation that if the price of oranges (a substitute good) increases, demand for grapes will shift right as consumers substitute grapes for oranges. 3) An explanation that if the price of grapes increases, quantity demanded decreases along the existing demand curve as demand remains the same. 4) Events that would cause the demand curve for grapes to shift left, including decreases in the price of substitutes, population, or expected future price of grapes. 5) A calculation showing that if price decreases, total revenue received by grape producers may also

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34 views5 pages

Econ107-02 Homework3 Yusuf Aksakal

This document is a homework assignment that discusses the demand curve for fresh grapes. It includes: 1) A graph of the demand curve for fresh grapes. 2) An explanation that if the price of oranges (a substitute good) increases, demand for grapes will shift right as consumers substitute grapes for oranges. 3) An explanation that if the price of grapes increases, quantity demanded decreases along the existing demand curve as demand remains the same. 4) Events that would cause the demand curve for grapes to shift left, including decreases in the price of substitutes, population, or expected future price of grapes. 5) A calculation showing that if price decreases, total revenue received by grape producers may also

Uploaded by

Yusuf Aksakal
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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HOMEWORK 3

ECON-107 SECTION-2
YUSUF AKSAKAL 21902837

a) Plot the demand curve for fresh grapes.


Graph1

Demand Curve for Fresh Grapes


1.1
1
0.9
0.8
0.7
Price ($/lb)

0.6
0.5
0.4
0.3
0.2
0.1
0
3 4 5 6 7 8 9 10 11 12 13

Quantitiy (lb per household)

b) In the textbook, it is stated that “When two goods are substitutes, the more you buy of one,
the less you will buy of the other”( Hubbard and O’Brien, 77). Hence, assuming that oranges
are substitutes for grapes and their price increases, we can predict that people will buy less
oranges but more grapes even though the price of grapes stays the same. This will cause the
demand for grapes to shift to the right which means that people will buy more grapes for the
given prices. See the following graph as an example:
Graph2

Demand Curve for Fresh Grapes


1.1
1
0.9 Increase in the
price of oranges
0.8
0.7
Price ($/lb)

0.6
0.5
0.4
0.3
0.2
0.1
0
3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Quantitiy (lb per household)

Previous demand curve

After the increase in the


price of oranges

In conclusion, an increase in the price of grapes will cause an increase in both the demand for
fresh grapes and the quantity demanded for a given price.

c) If the price of grapes increases, then, quantity demanded for grapes decreases by the law of
demand. However, the change in quantity demanded refers to a movement on the demand
curve. Hence, the demand for grapes stays the same.
Graph3 (an example for an increase in price)

Demand Curve for Fresh Grapes


1.1
Quantity demanded decreases
1
0.9
Upward movement Price increases
0.8 along the demand curve
Price ($/lb)

0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
3 4 5 6 7 8 9 10 11 12 13

Quantitiy (lb per household) Final price


Initial price

d)
Event 1: Decrease in the price of a substitute product
Let’s say oranges are substitute for grapes as we assumed in part b. In this case,
assume that the price of oranges decreases. Then, due to the same reason explained in part b,
people will buy more oranges than grapes. This situation will cause the demand curve for
grapes to shift left meaning that people demand less quantities for every price.
Event 2: Decrease in the population
Let’s say we analyze the demand for grapes in a city. If the population of the city
decreases, then, total consumers of grape will decrease. Which means total quantity demanded
for grapes will decrease for every price and the demand curve will shift to the left. The
reasons for the population to decrease could be one of the following factors:
1) Natural disaster
2) Climate change
3) Migration from rural to urban areas
4) End of holiday season etc.
Event 3: Decrease in the expected price of grapes
Let’s assume that people expect the price of grapes to decrease in the near future.
Then, they would wait and postpone their purchases until the decrease happens. This would
cause the demand for grapes to decrease and demand curve to shift to the left for the current
time.
e) Total receipts of grape producers can be calculated by the following formula:
R=PxQ
R: total receipt
P: price
Q: quantity demanded for the given price

Let’s use this formula for the given two cases and compare them.

Case1 (P1 = 0.85 ($/lb) and Q1 = 5 (lb))


R1 = P1 x Q1 = 0.85 ($/lb) x 5 (lb) = 4.25 $

Case2 (P2 = 0.7 ($/lb) and Q2 = 6 (lb))


R2 = P2 x Q2 = 0.7 ($/lb) x 6 (lb) = 4.2 $

Notice that
P1 > P2

Which means that if price decreases from 0.85 $/lb to 0.7 $/lb, then, the total revenue
decreases from 4.25 $ to 4.2 $.
Works Cited

Hubbard, R. Glenn, and Anthony Patrick O'Brien. Economics. 7th ed., Pearson, 2019.

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