Instructions

• Answers must be type written. Graphical image can be hand-drawn and scanned.
• Submit your file in pdf or docx extension format. Not in PAGES extension.
• When answering the problems, students need to provide explanation to their answers, and provide mathematical work when solving math questions. Refer to the grading rubric for the grading criterions.
• Round up to two decimal places whenever needed.

Problem 1: Sections 3.1 to 3.3 Demand, Supply, and Equilibrium; Shifting of the Curve

Achievement of Module Learning Objectives

• Discuss and analyze demand, supply, and equilibrium in markets for goods and services
• Explain factors that shift in demand and supply for goods and services
• Apply the four-step process to explain the changes in equilibrium price and quantity

The following table shows the market demand and supply of bicycles in a small town for a regular season.

Price	Quantity Demanded (thousands)	Quantity Supplied (thousands)	Shortage, Surplus, or Equilibrium	Price Rises or Falls
$140	18	1
$160	14	4
$180	11	7
$200	9	9
$220	7	11
$240	5	13
$260	3	15
$280	2	16
$300	1	17

Use the above Demand and Supply Schedule to:

• (3 points) Plot a demand and supply graph for the market of bicycles.
  • Label correctly the horizontal axis as the number of bicycles (in thousand units) and the vertical axis as the price. Label the demand curve and supply curve on your graph.
  • Mark at which price the market is in equilibrium (on the graph and in the table).
• (2 points) Fill in the table if there is a shortage or surplus at each price and how many units it is; is the market price going to rise or fall?
• (3 points) Assuming gasoline price is rising while bicycle price stays the same, there is an increase in the demand for bicycles of 4 thousand units. It means that at every price, 4 thousand units will increase the demand. For example, the new quantity demanded at $140 will be 22 thousand units (18K + 4K = 22K) and same increase for other prices. Add a column and list the new demand quantity at each price in the above table. Plot a new AD curve on the same graph you have drawn from (1).
• (2 points) After the increase in demand (shifting of the demand curve), explain if there is a shortage or surplus at the original price; is the new equilibrium price increased or decreased?
• (2 points) Name a factor that could cause the supply of bicycles to change--a shifting factor of the supply curve. Ceteris paribus, describe the changes in equilibrium price and quantity as a result.