Microeconomics Tutorials #4
- 1. Microeconomics section #4 (1)Discuss whetheryou agree ordisagree with eachon the following using graph: 1. Changes in the supply of Lipton tea are illustrated graphically by movement along supply curve. 2. The price of a good rises, causing the demand for another good to fall, therefore those goods are complements. 3. As the level of technology increase, cost of production increase and the supply shift to the left. 4. During 2011, income fell sharply for many Egyptians. This change would likely lead to decrease in the prices of houses in the housing market 5. If apples and oranges are substitutes, a disease that destroys some of the apple trees will most likely reduce the price of apples and increase the price of oranges. 6. When consumer incomes increase and there is technological progress, the equilibrium quantity increases, but the change in price cannot be determined. 7. If actual price exceeds equilibrium there is a tendency for actual prices to rise. 8. When the quantity demanded exceeds the quantity supply there will be a downward pressure on the market price. Question(2) Suppose that in some markets, demand can be approximated by Q = 50 - 5P + 10Y where Q is quantity, P price per unit, and Y buyers = income. Supply can be approximated by Q = -5 + 10P. a. If Y = 20, what is equilibrium price and output? b. If Y rises to 25, what is the new equilibrium price and output? Q(3) Show graphically the impact of the following: 1. The effect of bad weather that damage coffee crop in Egypt on the coffee market, the tea market and the creamer market in Egypt (assume that coffee and tea are substitutes while creamer is only used in coffee).
- 2. 2. The effect of decrease in the prices of some raw materials used in producing cars on the car market. 3. The effect that iphones become more fashionable on the iphone market. 4. With increased access to wireless technology and lighter weight, the demand for laptop computers has increased substantially. Laptops have also become easier and cheaper to produce as new technology has come online. Despite the shift of demand, prices have fallen. Q(4)You are given the following supply and demand schedules for shoes (in pairs per month): Price per pair (1) Quantity demanded (2) Quantity supplied (3) Excess demand Excess supply (4) 60 140 100 70 130 110 80 120 120 90 110 130 100 100 140 110 90 150 120 80 160 a) Plot the demand and supply curves. Indicate the equilibrium price and quantity. b) Fill in column (4) for values of excess demand and supply. What is the value of excess demand (supply) at equilibrium? c) Given the supply and demand curves in part (a), if the price was 60, why would that be a disequilibrium situation? In what direction would the price likely move? Explain. d) Given the supply and demand curves in (a), if the price was 100$, why would that be a disequilibrium situation? In what direction would the price likely move? Explain.
- 3. Q(5) Using graphical illustrations to show how would the market price of Samsung smart phones be affected in each of the following cases: a) An increase in unemployment among young people. b) A successful advertising campaign for Samsung. c) A major cut in the cost of electronic components used to manufacture Samsung smart phones. Q(6) MCQ: 1) At an equilibrium price, quantity demanded a. Exceeds quantity supplied. b. Equals quantity supplied. c. Is less than quantity supplied. d. Any of the above is possible. 2) A market will experience a ____ when the price is above equilibrium and a ____ when the price is below equilibrium. a. shortage, shortage b. surplus, surplus c. shortage, surplus d. surplus, shortage 3) Starting from equilibrium point, an increase in demand greater than an increase in supply will lead to: a. A decrease in both the equilibrium price and quantity. b. An increase in both the equilibrium price and quantity. c. A decrease in the equilibrium price, and an increase in the equilibrium quantity. d. An increase in the equilibrium price, and an decrease in the equilibrium quantity. 4) Which of the following is the correct way to describe equilibrium in a market? a. At equilibrium, demand equals supply. b. At equilibrium, quantity demanded equals quantity supplied. c. At equilibrium, market forces are no longer at work. d. Equilibrium is a tendency, a state of perpetual motion. e. Equilibrium is the best combination of price and quantity.
- 4. 5) Are markets always in equilibrium? a. Yes, they are always at the equilibrium point, or very close to it. b. Yes, because few things tend to alter supply and demand. c. No, but if there is no interference, they tend to move toward equilibrium. d. No, they never "settle down" into a stable price and quantity. e. Uncertain, economic theory has no answer to this question. Answer the following question according to the following Figure: 6) there would be a surplus of T-shirts if the price were a. $10. b. $8. c. below $8. d. between $8 and $6. 7) If the price of a good is below the equilibrium price, a. suppliers will find inventories building; they will cut output and raise prices. b. suppliers will find inventories being depleted. They will increase production and raise prices. c. the demand curve will shift down until an equilibrium is established at the existing price. d. the supply curve will shift up until an equilibrium is established at the existing price.
- 5. 8) At price P1 in the figure, what will tend to happen? a. There will be a shortage, and the price will fall. b. There will be a shortage, and the price will rise. c. There will be a surplus, and the price will rise. d. There will be a surplus, and the price will fall. e. Equilibrium will occur in the market. 9) At price P3 in the figure, what will tend to happen? a. There will be a shortage, and the price will fall. b. There will be a shortage, and the price will rise. c. There will be a surplus, and the price will rise. d. There will be a surplus, and the price will fall. e. Equilibrium will occur in the market. MCQ answers: 1) B 2) D 3) B 4) B 5) C 6) A 7) B 8) D 9) B
- 6. Q(7) The table below shows the supply and demand for pencils: Price Quantity Demanded Quantity Supplied $ 0.60 10,000 15,000 0.50 12,000 12,000 0.40 14,000 9,000 0.30 16,000 6,000 0.20 18,000 3,000 (a.) What is the equilibrium price and quantity? How can you tell? (b.) Suppose the current price is $0.20. What situation is present? Will the price remain at $0.20? Why or why not? Q(8) The following equation describes the relationship betweenthe price of scanners (P) and the quantity that buyers will purchase eachweek (Q): Q = 300 – 2P. The following equation describes the relationship between the price of scanners (P) and the quantity that sellers will sell each week (Q): Q = 3P. On a graph (with Q on the horizontal axis and P on the vertical axis), plot the two equations using the following values for P: $30, $40, $50, $60, and $70. At what price do the two curves intersect? What is the quantity of scanners at this point? Question(9): Suppose that the local hospital claims that the wages of nurses are too high. Yet, the hospital has 10 nursing positions open and no applicants for the jobs. Is the hospital's claim legitimate? Why or why not? Answer: No. Since the quantity of nurses demanded is greater than the quantity supplied, there is a shortage of nurses. Thus, the wage currently paid to nurses must be below the market equilibrium wage.