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ECS2601 Assignment 1 (COMPLETE
ANSWERS) Semester 1 2026 - DUE 19
March 2026
NO PLAGIARISM
[Pick the date]
[Type the abstract of the document here. The abstract is typically a short summary of the contents of
the document. Type the abstract of the document here. The abstract is typically a short summary of
the contents of the document.]
,Exam (elaborations)
ECS2601 Assignment 1 (COMPLETE
ANSWERS) Semester 1 2026 - DUE 19
March 2026
ECS2601 Assignment 1 (COMPLETE ANSWERS) Semester 1 2026 - DUE 19
March 2026; 100% TRUSTED Complete, trusted solutions and explanations
Ensure your success with us...
In your own words, explain how you understand the working of the market
mechanism. Explain in your own words how price adjustments eliminate
shortages and surpluses in a competitive market. (2) 1.2 Differentiate
between any two of the following concepts: (4) (a) Substitution effect versus
income effect (b) Normal good versus inferior good (c) Price elasticity of
demand versus price elasticity of supply (d) Perfect substitutes versus
perfect complements 1.1 In your own words, explain how price ceilings and
price floors affect the functioning of a market. (2) 1.2 Differentiate between
any two of the following concepts: (4) (a) Movement along a demand curve
versus a shift of the demand curve (b) Normal goods versus luxury goods (c)
Short-run versus long-run production (d) Accounting profit versus economic
profit In your own words, explain how you understand the working of the
market mechanism. 1.3 Discuss the likely shape of the following curves
(include a graph in your explanation): (4) Differentiate between any two of
the following concepts: (4) (a) Completeness and transitivity in relation to
consumer choices (b) Inferior product versus a Giffen good (c) Infinite elastic
and complete inelastic demand (d) Ordinal versus cardinal rankings (a) The
Engel curve for a normal good (b) The total product curve in the short run
when the law of diminishing returns applies (Make sure to clearly label all
axes and explain the economic reasoning behind the shape.)
1.1 The Market Mechanism: The "Invisible Hand"
The market mechanism is the process by which the forces of demand and supply interact to
determine the price and quantity of a good.
Surpluses: If the price is too high, sellers want to sell more than buyers want to buy. This
excess supply (surplus) puts downward pressure on the price. To clear their shelves,
sellers lower prices until they hit equilibrium.
Shortages: If the price is too low, buyers want more than is available. This excess
demand (shortage) allows sellers to raise prices. As the price rises, some buyers drop out
and more sellers enter until the market balances.
,
, Shutterstock
Price Ceilings and Floors
Governments sometimes intervene in this mechanism:
Price Ceiling: A legal maximum price (e.g., rent control). If set below equilibrium, it
causes a permanent shortage because it prevents the price from rising to clear the
market.
Price Floor: A legal minimum price (e.g., minimum wage). If set above equilibrium, it
causes a permanent surplus (unemployment, in the case of labor) because the price
cannot fall to meet demand.
1.2 Conceptual Differences (Selected Pairs)
(a) Substitution Effect vs. Income Effect
Substitution Effect: When the price of a product falls, it becomes cheaper relative to
other goods, so consumers swap the expensive items for the cheaper ones.
Income Effect: When the price falls, your "real" purchasing power increases (you feel
richer), allowing you to buy more of everything, including the original good.
(b) Movement along a Demand Curve vs. Shift of the Demand Curve
Movement: This happens only when the price of the good itself changes. It reflects a
change in "quantity demanded."
Shift: This happens when an outside factor changes (like a rise in consumer income or a
change in tastes). The entire curve moves left or right.
1.3 Curve Analysis and Economic Reasoning
(a) The Engel Curve for a Normal Good
The Engel curve shows the relationship between the quantity demanded of a good and
consumer income.
Shape: For a normal good, the curve is upward sloping.
Reasoning: As income increases, the demand for a normal good also increases. The
slope might get steeper or flatter depending on whether the good is a necessity (demand
grows slowly) or a luxury (demand grows rapidly).
ECS2601 Assignment 1 (COMPLETE
ANSWERS) Semester 1 2026 - DUE 19
March 2026
NO PLAGIARISM
[Pick the date]
[Type the abstract of the document here. The abstract is typically a short summary of the contents of
the document. Type the abstract of the document here. The abstract is typically a short summary of
the contents of the document.]
,Exam (elaborations)
ECS2601 Assignment 1 (COMPLETE
ANSWERS) Semester 1 2026 - DUE 19
March 2026
ECS2601 Assignment 1 (COMPLETE ANSWERS) Semester 1 2026 - DUE 19
March 2026; 100% TRUSTED Complete, trusted solutions and explanations
Ensure your success with us...
In your own words, explain how you understand the working of the market
mechanism. Explain in your own words how price adjustments eliminate
shortages and surpluses in a competitive market. (2) 1.2 Differentiate
between any two of the following concepts: (4) (a) Substitution effect versus
income effect (b) Normal good versus inferior good (c) Price elasticity of
demand versus price elasticity of supply (d) Perfect substitutes versus
perfect complements 1.1 In your own words, explain how price ceilings and
price floors affect the functioning of a market. (2) 1.2 Differentiate between
any two of the following concepts: (4) (a) Movement along a demand curve
versus a shift of the demand curve (b) Normal goods versus luxury goods (c)
Short-run versus long-run production (d) Accounting profit versus economic
profit In your own words, explain how you understand the working of the
market mechanism. 1.3 Discuss the likely shape of the following curves
(include a graph in your explanation): (4) Differentiate between any two of
the following concepts: (4) (a) Completeness and transitivity in relation to
consumer choices (b) Inferior product versus a Giffen good (c) Infinite elastic
and complete inelastic demand (d) Ordinal versus cardinal rankings (a) The
Engel curve for a normal good (b) The total product curve in the short run
when the law of diminishing returns applies (Make sure to clearly label all
axes and explain the economic reasoning behind the shape.)
1.1 The Market Mechanism: The "Invisible Hand"
The market mechanism is the process by which the forces of demand and supply interact to
determine the price and quantity of a good.
Surpluses: If the price is too high, sellers want to sell more than buyers want to buy. This
excess supply (surplus) puts downward pressure on the price. To clear their shelves,
sellers lower prices until they hit equilibrium.
Shortages: If the price is too low, buyers want more than is available. This excess
demand (shortage) allows sellers to raise prices. As the price rises, some buyers drop out
and more sellers enter until the market balances.
,
, Shutterstock
Price Ceilings and Floors
Governments sometimes intervene in this mechanism:
Price Ceiling: A legal maximum price (e.g., rent control). If set below equilibrium, it
causes a permanent shortage because it prevents the price from rising to clear the
market.
Price Floor: A legal minimum price (e.g., minimum wage). If set above equilibrium, it
causes a permanent surplus (unemployment, in the case of labor) because the price
cannot fall to meet demand.
1.2 Conceptual Differences (Selected Pairs)
(a) Substitution Effect vs. Income Effect
Substitution Effect: When the price of a product falls, it becomes cheaper relative to
other goods, so consumers swap the expensive items for the cheaper ones.
Income Effect: When the price falls, your "real" purchasing power increases (you feel
richer), allowing you to buy more of everything, including the original good.
(b) Movement along a Demand Curve vs. Shift of the Demand Curve
Movement: This happens only when the price of the good itself changes. It reflects a
change in "quantity demanded."
Shift: This happens when an outside factor changes (like a rise in consumer income or a
change in tastes). The entire curve moves left or right.
1.3 Curve Analysis and Economic Reasoning
(a) The Engel Curve for a Normal Good
The Engel curve shows the relationship between the quantity demanded of a good and
consumer income.
Shape: For a normal good, the curve is upward sloping.
Reasoning: As income increases, the demand for a normal good also increases. The
slope might get steeper or flatter depending on whether the good is a necessity (demand
grows slowly) or a luxury (demand grows rapidly).
