We are driven to buy and sell goods and services in the market by two simple facts. First, most of us are incapable of producing everything we want to consume. Second, even if we could produce all our own goods and services, it would still make sense to specialize, producing only one product and trading it for other desired goods and services.

Briefly explain by means of a graph how an equilibrium price is set in the supply and demand market.1.2 Briefly explain how a reduction in oil production (assumption) will affect the supply and demand curve and indicate your answer on a graph. Show Equilibrium in the graph

Question 2 (Elasticity)
Required:
The response of consumers to a change in price is measured by the price elasticity of demand. Therefore the demand for various goods may be characterized in three ways: elastic, inelastic and unitary elastic.
2.1 Discuss the characteristics of elasticity by means of graphs and give examples of each: Elastic in chocolate, Inelastic in oil and Unit Elastic in one of the luxury things.
Question 3 (Cost and Production)
As in all production endeavors, we want to know how much output we can produce with available resources.
Required:

3.1 Complete the cost schedule given below and indicate at what output rate is ATC minimized.3.2 Use the cost data to plot the ATC and MC curves on a graph.

Rate of output Total cost Marginal cost Fixed cost Variable cost Average fixed cost Average variable cost Average total cost0 $1 000 $1 000 1 $1 100 $1 000 2 $1 300 $1 000 3 $1 650 $1 000 4 $2 200 $1 000 5 $3 000 $1 000