Question 1

(a) Explain changes in respective market equilibrium price and quantity with a suitable diagram for the following incidents.

(i) In the computer software market, the number of companies selling computer software decreases.

(5 marks)

(ii) In the market for bicycles, there is an increase in the price of steel used to make bicycles.

(5 marks)

(iii) In the home heating oil market, the price of natural gas increases. (Consumers can use either natural gas or heating oil to warm their houses.)

(5 marks)

(b) Discuss whether the following statements are true or false. Justify your answers.

(i) An increase in price results in an increase in supply but not an increase in the quantity supplied.

(5 marks)

(ii) An improvement in technology, for example an increase in yield rate, will shift the good's supply curve rightward.

(5 marks)