The following table shows the demand and supply of backpacks made by a Melbourne designer whose products sell exclusively to a youth market.
|
Price per backpack ($)
|
Quantity demanded per year
|
Quantity supplied per
year
|
|
200
|
1,000
|
2,500
|
|
180
|
1,200
|
2,200
|
|
160
|
1,400
|
1,900
|
|
140
|
1,600
|
1,600
|
|
120
|
1,800
|
1,300
|
|
100
|
2,000
|
1,000
|
Question 1:
Graph both the demand and supply curves and label the equilibrium price and quantity.
Question 2:
Suppose the existing market price is $100. What will happen in the market?
Question 3:
Suppose that a famous celebrity starts wearing the backpack everywhere, making it very popular with young people. Young people are now willing to purchase 500 more backpacks per year at every price. Show this change on your graph and explain what happens to equilibrium price and quantity as a result.
Question 4:
What would need to happen in order to cause a movement along the demand curve for backpacks? How does this differ from what causes a shift in the demand curve?
Question 5:
Suppose that a rise in the price of the backpack from $140 to $160 causes the quantity demanded of Good X to fall from 850 to 650 units. Using the midpoint formula, calculate the demand elasticity of Good X (show the calculation) and identify its relationship to backpacks.
Question 6:
The Australian media publishes research showing that wearing backpacks can result in bad posture and future back problems. This news would be expected to cause the demand for backpacks to fall. What effects might be felt in other markets?