Definition Explanation

normal good is one for which demand increases as income increases

inferior good is a good for which demand decreases as income increases.

Substitute good is a good that can be used in place of another good. (coffee& tea- PC & Lap-

Complement good is a good that is used in conjunction with another good. ( CD& PC- SUGER& tea- )

Market Equilibrium

Use your eye !

5- Assume the following market model:

QD1990 = 1600 – 125PQD1991 = 1200 – 125P QD1992 = 1800 – 125PQS1990-1992 = 440 + 165P

Calculate equilibrium prices and equilibrium quantities in 1990, 1991 and 1992.

6- The table sets out the demand and supply schedules for tomato:

a. Draw a graph of the tomato market and mark in the equilibrium price and quantity

b. If the price is 50 cents a crate, is there a shortage or a surplus, and how does the price adjust?

c. If the quantity of tomato that people want to buy increased by 40 million crates per week at each price, how does the demand of tomato change? Explain?

d. If a virus destroys tomato and the quantity of tomato produced decreases by 30 million crate a week at each price, how does the supply of tomato changes? Explain?

Price (cent per crate)

Quantity demanded (Million)

Quantity supplied (Million)

50 160 130

60 150 140

70 140 150

80 130 160

90 120 170

100 110 180