Economic-Assignment 1.docx

Economic Group Assignment
Group 4 – EMBF 10th Batch
Submission Date – 5 Aug 2023
Group Members
1 Ma Ya Min Kyaw EMBFI-51
2 Ma Nyein Nyein EMBF-31
3 Ko Si Thu Kyaw EMBF-40
4 Ko Wai Phyo Oo EMBF-49
5 Ma San Thida EMBFI-35
6 Ma Me Me Linn Mg EMBFI-26
7 Ma Lae Lae Naing EMBFI-21
8 Ma Sandy Tin Htut EMBF-37
9 Ma Zin Mon Mon Oo EMBFI-55
Economic Chapter 4
Q4-page 87
Consider the markets for DVD movies, TV screens, and tickets at movie theaters.
a. For each pair, identify whether they are complements or substitutes:
• DVDs and TV screens
• DVDs and movie tickets
• TV screens and movie tickets
Answer
- DVDs and TV screens are complements because when people buy DVDs, they often want to
watch them on a TV screen for a better viewing experience. Conversely, people buying a new

TV screen may want to buy DVDs to enjoy watching their favorite movies and shows on the new
device.
- DVDs and movie tickets are substitutes because When people want to watch a movie, they
have the option of buying a DVD and watching it at home or buying tickets to watch it in a
theater. If movie tickets are too expensive or if it is convenient to watch at home, they may prefer
to buy DVDs.
- TV screens and movie tickets are substitutes because people can watch movies on their
television screens at home or visit theaters to watch them on the big screen. For example, the
theater experience such as bigger screen, better sound, communal experience is significantly less
than the convenience and comfort of watching at home, people may choose to stay at home and
use their TV screens.
b. Suppose a technological advance reduces the cost of manufacturing TV screens. Draw a
diagram to show what happens in the market for TV screens.
Answer
The technological improvement would reduce the cost of producing a TV screen, shifting the
supply curve to the right. The demand curve would not be affected. The result is that the
equilibrium price will fall, while the equilibrium quantity will rise. This is shown in the
following Figure.
P
P1
Q Q1
Supply
New Supply
Demand
Price of
TV Screen
Quantity of TV
Screen

c. Draw two more diagrams to show how the change in the market for TV screens affects the
markets for DVDs and movie tickets.
Answer;
Diagram-1:
The reduction in the price of TV screens would lead to an increase in the demand for DVDs
because TV screens and DVDs are complements. The effect of this increase in the demand for
DVDs is an increase in both the equilibrium price and quantity, as shown in the following
Figure.
A
B
PNew
P
Q QNew
Supply
New Demand
Demand
Price of
TV Screen
Quantity of TV
Screen
A- Old Equilibrium
B- New Equilibrium

Diagram-2:
The reduction in the price of TV screens would cause a decline in the demand for movie tickets
because TV screens and movie tickets are substitute goods. The decline in the demand for movie
tickets would lead to a decline in the equilibrium price and quantity old. This is shown in the
following Figure.
P
B
A
PNew
QNew
w
Q
Supply
Demand
New Demand
Price of
TV Screen
Quantity of TV
Screen
A- Old Equilibrium
B- New Equilibrium

Q 6, Page 87
Using supply-and-demand diagrams, show the effect of the following events on the market for
sweatshirts.
a. A hurricane in South Carolina damages the cotton crop.
Answer
Cotton is the raw material for sweatshirts. Consider a hurricane that hits South Carolina and
damages a cotton crop. The price of cotton will increase, and the cost of producing shirts will
also increase. Producers will reduce the supply of sweatshirts at a high production cost. With
constant demand, a decrease in supply causes an increase in the price of sweatshirts. As a result,
the supply of sweatshirts shifts to the left, as shown in the figure.
The supply of sweatshirts decreases and is shown by a leftward shift in the supply curve
from to . The quantity decreases from to , and the price increases
from to .

b. The price of leather jackets falls.
Answer
Leather jackets are substitutes for sweatshirts. As the price of leather jackets falls, the demand
for sweatshirts will also fall. Due to constant supply, the demand for shirts is decreasing, so the
prices of shirts are falling. This is shown in the diagram below.
A fall in the demand of sweatshirts causes a leftward shift in the demand curve
from to . With the supply being constant, a fall in the demand decreases the price
from to . The quantity decreases from to .

c. All colleges require morning exercise in appropriate attire.
Answer
By forcing all colleges to wear proper attire for morning exercise, the demand for sweatshirts
would increase. An increase in demand will increase the price of shirts as shown below.
The increase in demand of sweatshirts is shown by a rightward shift in the demand curve
from to . This leads to an increase in the price from to and an increase in the
quantity from to .

d. New knitting machines are invented.
Answer
The invention of new knitting machines was a technological advancement in the production of
sweatshirts. This leads to an increase in the supply of sweatshirts. With constant demand, an
increase in the supply of sweatshirts causes a decrease in the price. This is shown below in the
diagram.
The increase in the supply of sweatshirts is shown by a rightward shift in the supply curve
from to . This increases the quantity from to and decreases the price
from to .

Q 7, page 87
Ketchup is a complement (as well as a condiment) for hot dogs. If the price of hot dogs rises,
what happens to the market for ketchup? For tomatoes? For tomato juice? For orange juice?
Answer;
Ketchup is a complement (as well as a condiment) for hot dogs. If the price of hot dogs rises, the
quantity of hot dogs demanded (falls), which (lowers) the demand for ketchup. Because of the
change in the equilibrium quantity of ketchup, the demand for tomatoes by ketchup producers
(falls), causing the equilibrium price of tomatoes to (decrease). This means producers of tomato
juice face (lower) input prices, and the supply curve for tomato juice (increases). The resulting
(fall) in the price of tomato juice causes people to substitute (away from orange juice and
toward tomato juice), so the demand for orange juice (falls).
Hot dog prices can affect the markets for ketchup, tomatoes, tomato juice, and orange juice in a
number of different ways. Let's examine each of them:
 Market for Ketchup:
Since ketchup is considered a complement to hot dogs, an increase in the price of hot dogs may
result in a drop in consumer demand. As a result, people might eat fewer hot dogs, which could
lead to a decrease in demand for ketchup. The ketchup market could suffer as a result.
 Market for Tomatoes:
Demand for ketchup will also likely decline, as already mentioned, if demand for hot dogs
declines as a result of hot dog price increases. Since tomatoes are the main component of tomato
sauce, the demand for tomatoes used in the production of tomato sauce may decrease. The
market for tomatoes could decline as a result of this.
 Market for Tomato Juice:
Compared to ketchup and tomatoes, the tomato juice market is less affected by rising hot dog
prices. Unlike other products, tomato juice can be consumed as a beverage, it can be used in
cooking or added to mixed drinks. The tomato juice market may have some indirect effects for
ketchup but may be only slightly affected by changes in demand for tomatoes.
 Market for Orange Juice:
Orange juice does not directly compete with tomatoes or hot dogs in terms of market share. As a
result, the orange juice market is unlikely to be significantly affected by the increase in hot dog

prices. The demand for orange juice is mainly driven by the orange harvest, influenced by
consumer preferences and other factors that affect citrus market movements.
Explanation:
Overall, compared to the tomato juice and orange juice markets, the ketchup and tomato markets
are more likely to be affected by rising hot dog prices. It is important to note that actual
economic conditions can be more complex and multiple factors can have a simultaneous effect
on these markets.
Chapter 5
Q6- pg 106
The price of coffee rose sharply last month, while the quantity sold remained the same. Each of
five people suggests an explanation:
Tom: Demand increased, but supply was perfectly inelastic.
Dick:Demand increased, but it was perfectly inelastic.
Harry:Demand increased, but supply decreased at the same time.
Larry:Supply decreased, but demand was unit elastic.
Mary:Supply decreased, but demand was perfectly inelastic.
Who could possibly be right?
Tom, Dick, and Harry
Tom, Dick, and Mary
Tom, Harry, and Mary
Dick, Harry, and Larry
Dick, Harry, and Mary
Answer
According to Tom's suggestion, supply has not weakened at all, and demand has increased. This
suggestion can be represented in the graph below. In the diagram, a downward-sloping curve
represents a demand curve, and an upward-sloping line parallel to the y-axis represents a
perfectly inelastic supply curve. An increase in demand will shift the demand curve from D to
D1 upward. So the new equilibrium is reached at E1, where the quantity sold remains the same
but the equilibrium price rises from P to P1.
S
D
E
E1
P1
Q=Q1 Quantity
Price
P
D1

According to Dick's suggestion, demand increases but demand is perfectly inelastic. This
suggestion can be represented in the graph below. The upward-sloping curve is the supply curve,
represented by S, and the line parallel to the y-axis is the perfectly inelastic demand curve,
represented by D. An increase in demand will shift the demand curve from D to D1. The new
equilibrium point is reached at point E1, where the new demand curve and the supply curve
intersect. At point E1, the equilibrium quantity is Q1 and the equilibrium price is P1, and both
Q1 and P1 are greater than the previous equilibrium quantity Q and price P.
According to Harry's suggestion, demand increases and supply decreases at the same time. The
diagram below shows two curves labeled S and D, where S is the supply curve and D is the
demand curve. An increase in demand causes an upward shift in the demand curve from D to D1,
and a decrease in supply causes a leftward shift of the supply curve from S to S1. A new
equilibrium point E1 is obtained when S1 and D1 cross each other. The equilibrium quantity Q1
corresponding to E1 is the same as the initial equilibrium quantity. As long as the equilibrium
price P1 corresponding to E1 is greater than P, that is the initial equilibrium price.
Q1
D D1
E1
Q
E
P
P1
S
Quantity
Price
P
P1
Q=Q1
E1
E
D
D1
S
Price
Quantity
S1

Larry's suggestion can be represented in the graphic below. The graph is where D is the unit
elastic supply curve and S represents the supply curve. A decrease in supply causes a leftward
shift of the supply curve from S to S1. The new equilibrium E1 is reached when S1 intersects D.
At point E1, equilibrium quantity Q1 falls from Q, but equilibrium price rises from P to P1.
Mary's suggestion is illustrated in the graph below. With a perfectly inelastic demand curve (D),
a decrease in supply will cause a leftward shift in the supply curve from S to S1. A new
equilibrium point E1 where the new supply curve and the new demand curve intersect, the
equilibrium quantity Q1 equals Q and the equilibrium price P1 is greater than the initial price
level P.
E1
D
E
Q
S
S1
P
P1
Quantity
Price
Q1
E
E1
P
Q
P1
S
S1
D
Price
Quantity

Based on the information provided, Tom, Harry, and Mary's explanations are plausible as they
involve scenarios where the quantity sold remains constant while the price increases. Dick's
explanation is basically the same as Tom's, so he doesn't reveal any more information. Larry's
explanation is less likely because it assumes unit elastic demand does not adjust to observed
price increases.
Q5, Page 109
Cups of coffee and donuts are complements. Both have inelastic demand. A hurricane destroys
half the coffee bean crop. Use appropriately labeled diagrams to answer the following questions.
(a) What happens to the price of coffee beans?
Answer
When the coffee bean crops are damaged by a hurricane, coffee bean sales in the market
decrease and the supply curve shifts to the left, as shown in the following diagram;
Market for Coffee Beans
Initially, the market for coffee beans is in equilibrium at point E with equilibrium price being P and
equilibrium quantity being Q.
It has been stated that hurricane has destroyed half of the coffee bean crop. This destruction of
crop will decrease the supply of coffee bean crop.

This decrease is shown in above graph by the leftward shift of supply curve from S to S1.
New equilibrium is attained at point E1 with new equilibrium price being P1 and new equilibrium
quantity being Q1.
Thus, price of coffee beans has increased due to fall in supply as a result of destruction of coffee
beans crop by hurricane.
(b) What happens to the price of a cup of coffee? What happens to total expenditure on cups of
coffee?
Answer
An increase in the price of coffee beans will decreases the amount of coffee sold in the
market, causing the supply curve shift to the left as shown in the figure:
Market for Coffee
Initially, the market for coffee was in equilibrium at point E with equilibrium price being P per cup
and equilibrium quantity being Q cups.
Coffee beans acts as input in production of coffee. With increase in price of coffee beans, cost of
production of coffee increases leading to fall in supply.
This fall in supply shifts the supply curve of coffee leftwards (from S to S1).
New equilibrium is attained at point E1 with new equilibrium price being P1 per cup and new
equilibrium quantity being Q1 cups.
As one can see that price of a cup of coffee has increased.
What a customer spend on a good acts as revenue of the seller.

Initially, the price of coffee was P per cup and quantity demanded was Q cups. So, total
expenditure or total revenue was equal to area OPEQ.
New price of coffee is P1 per cup and new quantity demanded is Q1 cups. So, total expenditure
or total revenue is equal to area OP1E1Q1.
As area OP1E1Q1 is greater than area OPEQ, total expenditure on cup of coffee has increased.
Even though quantity demanded of coffee has decreased then also total expenditure has
increased because demand for coffee is inelastic and when demand for a product is inelastic, rise
in price leads to increase in total revenue or total expenditure.
(c) What happens to the price of donuts? What happens to total expenditure on donuts?
Answer
The Following chart shows the impact on the market for donuts if the price of coffee, which
complements donuts, increases.
Market for Donut
Initially, the market for donuts was in equilibrium at point E with equilibrium price being P per unit
and equilibrium quantity being Q units.
It has been stated that coffee and donuts are complement goods. In case of complement goods,
rise in price of one decreases the quantity demanded of other and vice-versa.
So, rise in price of coffee (as shown in part (b)) will lead to decrease in quantity demanded of
donuts.

This decrease in demand for donuts will shift the demand curve for donuts leftwards from D to D1.
New equilibrium is attained at point E1 with new equilibrium price being P1 per unit and new
equilibrium quantity being Q1 per unit.
As one can see that price of donuts has fallen.
What a customer spend on a good acts as revenue of the seller.
Initially, the price of donuts was P per unit and quantity demanded was Q units. So, total
expenditure or total revenue was equal to area OPEQ.
New price of donuts is P1 per unit and new quantity demanded is Q1 units. So, total expenditure
or total revenue is equal to area OP1E1Q1.
As area OP1E1Q1 is smaller than area OPEQ, total expenditure on donuts has decreased.
The reason behind this fall in total expenditure with fall in price is inelastic demand for donuts
because when demand for a product is inelastic, fall in price leads to decrease in total revenue or
total expenditure.
Q 6, Page 109
Suppose that your demand schedule for DVDs is as follows:
Price Quantity Demanded Quantity Demanded
(income = $10,000) (income = $12,000)
$8 40 DVDs 50 DVDs
10 32 45
12 24 30
14 16 20
16 8 12
(a) Use the midpoint method to calculate your price elasticity of demand as the price of DVDs
increases from $8 to $10 if (your income is $10,000 and (ii) your income is $12,000.
Answer
by using Mid-Point Method =
Q2-Q1
(𝑄2+𝑄1)/2
÷
P2-P1
(𝑃2+𝑃1)/2
If your Income is $10,000:
Q2 = 32 P2 = 10

Q1 = 40 P1 = 8
PED =
32-40
32+40
2
÷
10-8
10+8
2
=
-8
36
÷
2
9
=
-0.22
0.22
= -1
PED = 1 which is unit elastic.
If your Income is $12,000:
Q2 = 45 P2 = 10
Q1 = 50 P1 = 8
PED =
45-50
45+50
2
÷
10-8
10+8
2
=
-5
47.5
÷
-0.11
0.22
= 0.48
PED = 0.48 which is unit inelastic.
b) Calculate your income elascity of demand as your income increases from $10,000 to $12,000
if (i) the price is $12 and (ii) the price is $16.
Answer
Mid-point formula =
Q2-Q1
(𝑄2+𝑄1)/2
÷
I2 - I1
(𝐼2+𝐼1)/2
If the price is $12:
Q2 = 30 P2 = 12,000
Q1 = 24 P1 = 10,000
YED =
30-24
30+24
2
÷
12000-10000
12000+10000
2
=
-56
27
÷
2000
11000
=
0.22
0.18
= 1.22
Income elasticity of demand = 1.22 which means that DVDs are income elastic. They are
normal products and a luxury.
If the price is $16:
Q2 = 12 P2 = 12,000

Q1 = 8 P1 = 10,000
YED =
12-8
12+8
2
÷
12000-10000
12000+10000
2
=
4
27
÷
2000
11000
=
0.4
0.18
= 2.22
Income elasticity of demand = 2.22, which means that DVDs are highly income elastic. They are
normal products and a luxury. As income increases, so is their demand.
Q 7, Page 109
Maria has decided always to spend one-third of her income on clothing.
(a) What is her income elasticity of clothing demand?
Answer
If Maria always spends one-third of her income on clothing, then her income elasticity of
demand is 1 because maintaining her clothing expenditures as a constant fraction of her
income means the percentage change in her quantity of clothing must equal her percentage
change in income. For example,
Income elasticity of Maria’s clothing = 1
Her proportion of spending is always of her income
This can be illustrated with the following example.
Situation
Income Spending
on clothing $
Qty if (Q) Qty if (Q)
(1) 300
(2) 600
At a price of $10,
Income elasticity

(b) What is her price elasticity of clothing demand?
Answer
Maria's price elasticity of clothing demand is also 1 because every percentage point increase
in the price of clothing would lead her to reduce her quantity purchased by the same
percentage.
(c) If Maria’s tastes change and she decides to spend only one-fourth of her income on clothing,
how does her demand and curve change? What is her income elasticity and price elasticity
now?
Answer
If Maria spends a smaller proportion of her income on clothing, then for any given price, her
quantity demanded will be lower. Thus, her demand curve shifts to the left because she will
again spend a constant fraction of her income on clothing, and the new proportion spent on
clothing is less than the earlier proportion of income spent on clothing
Chapter 6
Q 4, Page130
Suppose the federal government requires beer drinkers to pay a $2 tax on each case of beer
purchased. (in fact, both the federal and state governments impose beer taxes of some sort.)
(a) Draw a supply and demand diagram of the market beer without the tax. Show the price
paid by consumers, the price received by producers and the quantity of beer sold, What
is the difference between the price paid by consumers and the price received by
producers?
Answer
Below is the supply and demand diagram of the market for beer without tax. The
point of intersection of supply and demand curve gives the equilibrium point E1. At
equilibrium, Q1 is the quantity of beer sold without tax and P1 is the price without tax.

Beer market without tax
Furthermore, the price paid by consumers equals to the price received by the producers at P1.
Thus, there is no difference between the price paid by the consumers and the price received by
the producers.
(b) Now draw a supply and demand diagram for the beer market with the tax. Show the price
paid by consumers the price received by producers and the quantity of beer sold what is
the difference between the price paid by consumers and the price received by producers.?
Has the quantity of beer sold increased or decreased?
Answer
Below is the supply and demand diagram for the beer market with tax. When a tax of
$2 is imposed on each case of bear sold. As shown in the below figure, it drives a
wedge of $2 between supply and demand curves.
Beer market with tax

Furthermore, due to tax, the price paid by consumers increases to P2, while the price received by
producers is P2 – $2. The difference between the price paid by the consumer and price received
by the producer is $2 per case of beer. In addition, the quantity of beer sold declines to Q2
Q6, Page 130
If the government places a $500 tax on luxury cars, will the price paid by consumers rise by
more than $500, less than $500, or exactly $500? Explain.
Answer
Luxury cars have an elastic demand but an inelastic supply. Imposing $500 tax on luxury cars
will have the following effect.
The price paid by the consumers increases from to . This increase is less than of
tax from to .
Since there is inelastic supply, more of the tax incidence will be on producers than buyers – who
have elastic demand.
Therefore, the increase in price is less than $500.

Q7-Pg 103
Congress and the president decide that the United States should reduce air pollution by reducing
its use of gasoline. They impose a $0.50 tax for each gallon of gasoline sold.
a. Should they impose this tax on producers or consumers? Explain carefully using a supply-and-
demand diagram.
Answer
Imposing $0.50 tax for each gallon of gasoline sold will have the same effect in reducing its use
regardless of whether it is imposed on the producers or the consumers. See the supply and
demand diagram below:
Figure A:
A tax on the consumers shifts the demand curve down from to . The equilibrium quantity
falls from Q1 to Q2. The price received by the sellers falls from to . The price that buyers
pay (including the tax) rises from to . Even though the tax is levied on the buyers, both
buyers and sellers share the burden of tax of ( to .

b. If the demand for gasoline were more elastic, would this tax be more effective or less effective
in reducing the quantity of gasoline consumed? Explain with both words and a diagram.
Answer
Figure B:
A tax on the producers shifts the supply curve up from to . The equilibrium quantity falls
from to . The price that the buyers pay rises from to . The price that sellers receive
falls from to even though the tax is levied on the sellers.
c. Are consumers of gasoline helped or hurt by this tax? Why?
Answer
The consumers are hurt by this tax as they must pay a higher price as compared to the price
without the tax. However, if the demand for gasoline were more elastic, the burden of tax
incidence would be less when compared to burden of the tax on the producers.

d. Are workers in the oil industry helped or hurt by this tax? Why?
Answer
The workers in the oil industry are also hurt by this tax because it reduces their wage payment
due to a reduction in profits because of the share of the tax born by the producers.

Extra Two Questions
Chapter 5
Q 3, Page 109
Suppose the price elasticity of demand for heating oil is 0.2 in the short run and 0.7 in the
long run.
a. If the price of heating oil rises from $1.80 to $2.20 per gallon, what happens to the quantity
of heating oil demanded in the short run? In the long run? (Use the midpoint method in your
calculations.)
Answer
a.
Price elasticity of demand = % change in quantity demanded / % change in price
For short run,
P1 = $1.8 per gallon
P2 = $2.20 per gallon
Percentage change in price =[{ (P2 – P1)/ (P1+P2)}/ 2]*100
=[{2.2-1.8)/(1.8+2.2)}2]*100
=20%
Price elasticity of demand = 0.2 (short run)
Percentage change in quantity demanded = 0.2/20% = 4%
In short run, the quantity of demand will decrease by 4% when the price rises from $1.80 to
$2.20 per gallon.
For long run,
% Change in Price = 20% (from above)
Price elasticity demand = 0.7 (long run)
Percentage change in quantity demanded = 0.7/ 20% = 14%
In long run, the quantity of demand will decrease by 14% when the price rises from $1.80 to
$2.20 per gallon.

b. Why might this elasticity depend on the time horizon?
Answer
The elasticity depends on the time horizon because of the consumers and the producers to adjust
their behaviors and choices. In the short run, consumers may not have many choices. they might
have limited options for finding alternative. This means that even with a price increase, the
change in quantity demanded is relatively small in the short run.
In the long run, consumers have more time to adjust their behavior and make changes. They can
invest in energy-efficient appliances, insulation, or even switch to other heating options like
natural gas or renewable energy sources. This increased flexibility makes their demand more
elastic (elasticity of 0.7). Therefore, consumers are more sensitive to price changes, and a price
increase will lead to a relatively larger decrease in quantity demanded in long run, compared to
the short run.
Q 8,Page 109
The New York Times reported (Feb. 17, 1996) that subway ridership declined after a fare increase:
there were nearly four million fewer riders in December 1995, the first full month after the price
of a token increased 25 cents to $1.50, than in the previous December, a 4.3% decline.
a. Use this data to infer the original subway token price and calculate the price elasticity of demand
for subway rides.
Answer
a. Price elasticity of demand = % Change in Quantity Demanded/ % Change in Price
Percentage change in demand = -4.3%
Initial Price = 1.50$ - 0.25 = 1.25
Changes in Price = (1.50 + 1.25)/2 = 1.375
Percentage change in price = 0.25 / 1.1375 = 18.88%
Price elasticity of demand = -4.3/18.88 = -0.23
Therefore, the price elasticity of demand for subway rides is -0.23.
b. According to your elasticity estimate, what happens to the transit authority's revenue when the
fare rises?
Answer
b. According to the estimate, the Transit Authority’s revenue would decrease when the fare
rises, since the price elasticity is inelastic (-0.23). This means that the percentage change
in quantity demanded is proportionately smaller than the percentage change in price.

c. Why might your estimate of the elasticity be unreliable?
Answer
c. The elasticity estimate must be unreliable because it is only the first month after the fare
rise. Data accuracy is low since it is only for one month. As time goes by, people may move
toward other means of transportation in response to the price rise or since the decrease in
demand is in December, people might be on holiday and may not be using subway for
commuting to work. So, the elasticity may be higher in the long run than it is in short run
or may be lower in the long run than it is in the short run.

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