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ECO101: Introduction To Economics (Summer Semester, 2019) Tutorial Problem Set - 01

The document contains 7 problems related to economics topics such as calculating the consumer price index and inflation rate, determining real prices adjusted for inflation, deriving demand and supply equations, and calculating price elasticities. Multiple choice questions at the end cover definitions of macroeconomic variables, factors of production, examples of cartels, and characteristics of competitive markets.

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Shubham Kumar
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34 views3 pages

ECO101: Introduction To Economics (Summer Semester, 2019) Tutorial Problem Set - 01

The document contains 7 problems related to economics topics such as calculating the consumer price index and inflation rate, determining real prices adjusted for inflation, deriving demand and supply equations, and calculating price elasticities. Multiple choice questions at the end cover definitions of macroeconomic variables, factors of production, examples of cartels, and characteristics of competitive markets.

Uploaded by

Shubham Kumar
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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ECO101: Introduction to Economics (Summer Semester, 2019)

Tutorial Problem Set – 01

1. From the following data calculate the consumer price index for 2005 and 2006 taking
2000 as base year and also determine the inflation rate in 2006.

Product 2000 2005 2006

Quantity Price Price Price


Transport 1 $50 $80 $100

Clothes 5 $30 $50 $60

Power 10 $20 $30 $40

2. The following table shows the average retail price of butter and the consumer price
index from 1980 to 2000, scaled so that the CPI=100 in 1980.

1980 1985 1990 1995 2000 2001


CPI 100 130.58 158.56 184.95 208.98 214.93
Retail Price of Butter $1.88 $2.12 $1.99 $1.61 $2.52 $3.30

a) Calculate the real price of butter in 1980 dollars. Has the real price
increased/decreased/stayed the same since 1980?
b) What is the percentage change in real price (1980 dollars) from 1980 to 2000?
c) Convert the CPI into 1990 = 100 and determine the real price of butter in 1990
dollars.
d) What is the percentage change in real price (1990 dollars) from 1980 to 2000?
Compare this with answer in (b).

3. A vegetable fiber is traded in a competitive world market, and the world price is $9
per pound. Unlimited quantities are available for import into the United States at this
price. The U.S. domestic supply and demand for various price levels are shown as
follows:
Price U.S. Supply U.S. Demand
(Million Lbs.) (Million Lbs.)
3 2 34
6 4 28
9 6 22
12 8 16
15 10 10
18 12 4

a) What is the equation for demand? What is the equation for supply?
b) At a price of $9, what is the price elasticity of demand? What is it at a price of $12?
c) What is the price elasticity of supply at $9? At $12?
d) In a free market, what will be the U.S. price and level of fiber imports?

4. In 1998, the total demand for U.S wheat was Q = 3244- 283P and the domestic supply
was Q(s) = 1944+207P. At the end of 1998, both Brazil and Indonesia opened their
wheat markets to U.S. farmers. Suppose that these new markets add 200 million
bushels to U.S. wheat demand. What will be the free-market price of wheat and what
quantity will be produced and sold by U.S. farmers?

5. Consider the following demand and supply relationships in the market for golf balls:
QD= 90 – 2P – 2T and QS = ‐9 + 5P – 2.5R
where T is the price of titanium, a metal used to make golf clubs, and R is the price of
rubber. If R = 2 and T = 10,
a) calculate the equilibrium price and quantity of golf balls.
b) At the equilibrium values, calculate the price elasticity of demand and the price
elasticity of supply.

6. Northern Energy Company is interested in obtaining quick estimate of the weekly


supply and demand curves for coal. The firm’s research department informs you that
the price elasticity of supply is approximately 0.8, the price elasticity of demand is
approximately –0.64, and the current price and quantity are $40 and 1280,
respectively. Price is measured in C$ per ton and quantity is measured in tons per
week.
a) Estimate the weekly supply and demand curves at the current price and quantity.
b) What impact would a 20% increase in weekly demand and a 10% decrease in weekly
supply have on the equilibrium price and quantity?
c) What is the percentage change in the equilibrium price and quantity caused by the
20% increase in demand and 10% decrease in supply?

7. Find the price elasticity of demand for the following demand functions.
a) D(p)=30-6p d) D(p)=40p-2
b) D(p)=60-p e) D(p)=Ap-b
c) D(p)=a-bp f) D(p)=(p+3)-2

Multiple Choice Questions

1. Economics is the study of 5. The practice of buying at a low price at


(a) How society manages unlimited one location and selling at a higher
resources price in another location is called
(b) How to reduce our wants until we are (a) Arbitrage
satisfied (b) Market
(c) How society manages its scares (c) Equilibrium
resources
6. A group of producers that acts
2. Which of the following are collectively is called
macroeconomic variables? (a) Cartel
(a) Inflation (b) Arbitrage
(b) National Output (c) Market price
(c) Unemployment
(d) All 7. Which of the following is an example of
Cartel?
3. Labour, human capital, (a) OPEC
entrepreneurship, natural resources and (b) NATO
capital are all examples of (c) FAO
(a) Public goods
(b) Outputs 8. A perfectly competitive market has
(c) Factors of production (a) firms that set their own prices
(b) only one seller
4. Trade-off is required because wants are (c) many buyers and sellers
unlimited and resources are
(a) Economical
(b) Efficient
(c) Unlimited
(d) Scares

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