Exercise on Supply Exercise on Supply and Demand and Demand

AnalysisAnalysis

InstructionsInstructions

We have a certain commodity, “100% Pinoy We have a certain commodity, “100% Pinoy Laptop”, whose market we are going to analyze. Laptop”, whose market we are going to analyze.

Assume that exogenous forces are equal in Assume that exogenous forces are equal in magnitude, and S-D curves are unitary elastic.magnitude, and S-D curves are unitary elastic.

Given a certain event/scenario, analyze the Given a certain event/scenario, analyze the curve/s affected, shifts/or movements and the curve/s affected, shifts/or movements and the directiondirection

Effect to equil price (P*) and equil quantity (Q*)Effect to equil price (P*) and equil quantity (Q*) Assume ceteris paribus and initial equilibirumAssume ceteris paribus and initial equilibirum

1.1. Prices of optical drives suddenly increase.Prices of optical drives suddenly increase.2.2. A new market-standard operating system A new market-standard operating system

is released to the market but costs at least is released to the market but costs at least 50% higher than the previous edition.50% higher than the previous edition.

3.3. News spread that local laptops were News spread that local laptops were contaminated with melamine.contaminated with melamine.

4.4. Video chatting and internet-on-the-go Video chatting and internet-on-the-go becomes a fad.becomes a fad.

5.5. Taiwanese laptop manufacturers were Taiwanese laptop manufacturers were permitted to enter the Philippine marketpermitted to enter the Philippine market

6.6. Average desktop computer prices have Average desktop computer prices have plunged to all time lows.plunged to all time lows.

7.7. New taxes were imposed to laptops sales (per New taxes were imposed to laptops sales (per unit tax).unit tax).

8.8. A recession/economic downturn causes the A recession/economic downturn causes the income of consumers to decline AND causes income of consumers to decline AND causes the prices of laptop parts to increasethe prices of laptop parts to increase

10.10. Biggest local laptop manufacturer suddenly Biggest local laptop manufacturer suddenly becomes bankrupt AND the government gives becomes bankrupt AND the government gives subsidy to consumers to purchase “educational subsidy to consumers to purchase “educational and computer-literacy” related goods.and computer-literacy” related goods.

11.11. New production technologies were adopted by New production technologies were adopted by local laptop manufacturer AND prices of inputs in local laptop manufacturer AND prices of inputs in the production of desktop computers decline the production of desktop computers decline significantly.significantly.

12.12. Assume that the supply curve is perfectly Assume that the supply curve is perfectly inelastic, what happens if the income tax rates inelastic, what happens if the income tax rates suddenly increase?suddenly increase?