Economics Problem Essay

1)False When the demand curve shifts left, it means there is less demand for diamonds. However, when consumer income increases, their purchasing power increases (assuming the relative price of diamonds stay constant). That being said, consumers are more likely to purchase more diamonds, especially because it is a luxury good, causing the curve of diamonds to shift right, increasing the demand. 2)False As the population increases, the demand of beef increases as well, causing the demand curve to shift right. In order to accommodate for the increased demand in beef, the price needs to be increased as well in order to reach the appropriate market price for the current supply. Correspondingly, at the new demand curve, consumers are willing to buy more for each price per unit. Thus, this statement is not an example of the Giffen good and does not illustrate an upward sloping demand, instead, the demand curve simply shifted right to account for the increase beef demand. 3)Uncertain Although energy from nuclear power and oil are considered substitutes, it is unclear whether or not the techniques for producing energy from nuclear power is cheaper or similar in price when compared to energy produced from oil. IF, energy produced from nuclear power is cheaper or similar in price, the demand for oil as an energy source will be more elastic. 4)False The demand curve is the relationship between price and quantity demanded, it measures how much consumers are willing to buy for each price per unit. Change in price of good alone does not affect the demand curve, but it does affect the quantity demanded. In other words, if the price of good changes, we would be moving along the demand curve, not affecting the demand curve to shift left or right. Factors that would affect the demand curve include price of related goods, income, tastes, etc†¦) 5)True Assuming the statement focuses on the domestic tomatoes, this is true because the change in price of the domestic tomatoes affects only the quantity demanded of the domestic tomatoes, not the demand curve. The decrease in price will move us down the demand curve, increasing the amount consumers are willing to buy per price per unit. 6)False If the price of something goes up, it is not necessarily irrational to buy more of it. It really depends on the good that the consumer is buying. For example, because rice is a staple in China, people will continue to buy it despite the price increase. To them, there is no â€Å"substitute† to rice, thus the income effect dominates, causing them to continue buying rice at a higher price. 7)False The price may or may not rise when supply and demand increase, it all depends on whether or not the supply and demand increase together proportionately. If supply and demand increase at the same rate, the quantity will increase but the price will stay constant. If supply increases more than demand, the price will decrease. If demand increases more than supply, the price will increase. 8)False In this case, I saw gas as a necessity; it is relatively inelastic because anyone who owns and uses a car will need to buy gas regardless of the price. The quantity demanded moves along the demand curve as the price of gas increases or decreases, and this is true for both professors and grad students. Even without a ceiling, students will continue to purchase gas. Moreover, the incomes of a professor and grad student are not clearly stated. Some grad students may have more income than a professor, giving the grad student just as much, if not more, purchasing power, thus a price ceiling does not necessarily hurt the professor more than the student.