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Assignment Topic 2 - Equilibrium

The document summarizes supply and demand analysis for refrigerators. It includes: 1) Deriving the original supply and demand equations and finding the equilibrium price and quantity. 2) Analyzing a surplus and shortage if price is above or below equilibrium. 3) Explaining how an increase in electricity price would shift the demand curve left, lowering equilibrium price and quantity. 4) Calculating the new equilibrium with a fridge tax or subsidy and how it impacts price and quantity.

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Chi Nguyễn
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46 views5 pages

Assignment Topic 2 - Equilibrium

The document summarizes supply and demand analysis for refrigerators. It includes: 1) Deriving the original supply and demand equations and finding the equilibrium price and quantity. 2) Analyzing a surplus and shortage if price is above or below equilibrium. 3) Explaining how an increase in electricity price would shift the demand curve left, lowering equilibrium price and quantity. 4) Calculating the new equilibrium with a fridge tax or subsidy and how it impacts price and quantity.

Uploaded by

Chi Nguyễn
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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MICROECONOMICS

Individual Assignment 2
Full name: Nguyen Ha Chi
Student ID: 11220995
Class: EBBA 14.1
------------------------------------------
Exercise 1:

FRIDGE SUPPLY & DEMAND


Quantity Demanded Quantity Supplied

250

Equilibrium
200

150
PRICE ($)

100

50

0
0 200 400 600 800 1000 1200
QUANTITY (UNITS)

a. Demand and Supply equations:


1000 = 100𝑎 + 𝑏 𝑎 = −5
QD = aP + b  { { → QD = -5P + 1500
500 = 200𝑎 + 𝑏 𝑏 = 1500
300 = 100𝑎 + 𝑏 𝑎=5
QS = aP + b  { { → QS = 5P – 200
800 = 200𝑎 + 𝑏 𝑏 = −200
 Equilibrium price: QD = Qs  PE = $170
 Equilibrium quantity: QE = 5 × 170 − 200 = 650 (units)

b. At price of $200, we have


QS = 5 × 200 − 200 = 800 (units)
QD = -5 × 200 + 1500 = 500 (units)
 The surplus at the price of $200 is: QS – QD = 800 – 500 = 300 (units)
At price of $110, we have
QS = 5 × 110 − 200 = 350 (units)
QD = -5 × 110 + 1500 = 950 (units)
 The shortage at the price of $110 is: QD – Qs = 950 – 350 = 600 (units)

c. Suppose the supply of fridge is constant, if price of electricity increases then


the demand for fridge will decrease.
Price ($/unit) 100 120 140 160 180 200
New quantity
demanded (QD’) 700 600 500 400 300 200
(units)
Quantity supplied
300 400 500 600 700 800
(units)

If quantity demanded for fridge decreases by 300 units at each price level,
then the new demand line will move to the left, parallel with the initial demand line.

FRIDGE SUPPLY & DEMAND NO.2


New Quantity Demanded Quantity Supplied

250

200
New E

150
PRICE ($)

100

50

0
0 100 200 300 400 500 600 700 800 900

QUANTITY (UNITS)

We have: QD’ = QD – 300 = 1500 – 5P – 300 = 1200 – 5P


 QD’ = -5P + 1200
The new equilibrium price is: QD’ = QS → PE’ = $140
The new equilibrium quantity is: QD’ = 1200 – 5 × 140 = 500 (units)
d. The supply equation at original price and supply
∆𝑃 1
P=c+ × QS = c + QS
∆𝑄𝑠 5
1
 200 = c + × 800
5
 c = 40
1
 P = 40 + QS
5
Suppose that the government imposes a tax of $10 per one unit of fridge sold
1
P” = 40 + QS” + 10
5
 QS” = 5P – 250
The new equilibrium price for this scenario is:
QS” = QD → PE” = $175
The new equilibrium quantity is:
QE” = 5 × 175 – 250 = 625 (units)
e. Suppose that government supports for the sellers the amount of $10 per one
unit of fridge sold
1
P’” = 40 + QS’” – 10
5
 QS’” = 5P – 150
The new equilibrium price for this scenario is:
QS’” = QD → PE’” = $165
The new equilibrium quantity is:
QE’” = 5 × 165 – 150 = 675 (units).
Exercise 2:
a. An increase in Vietnamese personal income tax rates
Income tax rates (non-price factor) increase means that the quantity demanded
will fall (The demand line will move to the left side of the original line).
 The selling price will also drop to meet the equilibrium price and quantity
(E’< E)

10

6
E
Price

5
E’
4

0
1 2 3 4
Quantity
S D D'

b. An increase in the price of steel


Steel (non-price factor) is an input material of motorcycle production.
Therefore, an increase in the price of steel results in a decline in the quantity
supplied (The supply line will move to the left of the original one).
12

10

8
Price

6 E’

4
E
2

0
1 2 3 4
Quantity
D S S'

c. An improvement in technology in motor vehicle production at the same time


with a recession hits the Vietnamese economy.
- A recession (non-price factor) means that the general spending in the
economic market decreases (The demand line will move to the left side).
- Technology improvement in motorcycle production (non-price factor)
means that there is a rise in quantity supplied. (The supply line will move
to the right side)

12

10

8
E
Price

E’
4

0
1 2 3 4
Quantity
D D' S S'

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