PRINCIPLES OF MICROECONOMICS

Name : Trần Tiến Anh

Class : IP_22DQT01

Subject Lecturer/Tutor:
Assoc.Prof.PhD. Tran Nguyen Ngoc Anh Thu
Chapter 4 : (Market Forces of Supply and Demand)

Section A

1. If buyers and sellers in a certain market are price takers, then individually

a. they have no influence on market price.

b. they have some influence on market price, but that influence is limited.

c. buyers will be able to find prices lower than those determined in the market.

d. sellers will find it difficult to sell all they want to sell at the market price.

2. Two goods are substitutes if a decrease in the price of one good

a. decreases the demand for the other good.

b. decreases the quantity demanded of the other good.

c. increases the demand for the other good.

d. increases the quantity demanded of the other good.

3. The law of demand says that

a. an increase in quantity demanded causes price to decrease.

b. an increase in price causes quantity demanded to increase.

c. an increase in price causes quantity demanded to decrease.

d. an increase in quantity demanded causes price to increase.

4. Which of the following events would cause a movement upward and to the
right along the supply curve for tomatoes?

a. The number of sellers of tomatoes increases.

b. There is an advance in technology that reduces the cost of producing tomatoes.

c. The price of fertilizer decreases, and fertilizer is an input in the production of

tomatoes.

d. The price of tomatoes rises.

5. Which of the following events could cause an increase in the supply of
ceiling fans?

a. The number of sellers of ceiling fans increases.

b. There is an increase in the price of air conditioners, and consumers regard air
conditioners and ceiling fans as substitutes.

c. There is an increase in the price of the motor that powers ceiling fans.

d. All of the above are correct.

6. If, at the current price, there is a shortage of a good,

a. sellers are producing more than buyers wish to buy.

b. the market must be in equilibrium.

c. the price is below the equilibrium price.

d. quantity demanded equals quantity supplied.

7. A decrease in input costs to firms in a market will result in

a. a decrease in equilibrium price and a decrease in equilibrium quantity.

b. an increase in equilibrium price and no change in equilibrium quantity.

c. an increase in equilibrium price and an increase in equilibrium quantity.

d. a decrease in equilibrium price and an increase in equilibrium quantity.

8. Suppose that demand decreases and supply decreases. What would you
expect to occur in the market for the good?

a. Equilibrium price would increase, but the impact on equilibrium quantity would
be ambiguous.

b. Equilibrium price would decrease, but the impact on equilibrium quantity would
be ambiguous.

c. Equilibrium quantity would decrease, but the impact on equilibrium price would
be ambiguous.

d. Both equilibrium price and equilibrium quantity would increase.

9. Which of the following would not be a determinant of the demand for a
particular good?

a. prices of related goods

b. income

c. tastes

d. the prices of the inputs used to produce the good

10. Two goods are complements if a decrease in the price of one good

a. decreases the quantity demanded of the other good.

b. decreases the demand for the other good.

c. increases the quantity demanded of the other good.

d. increases the demand for the other good.

11. Two goods are substitutes if a decrease in the price of one good

a. decreases the demand for the other good.

b. decreases the quantity demanded of the other good.

c. increases the demand for the other good.

d. increases the quantity demanded of the other good.

12. Proton Berhad announces that it will offer RM3,000 rebates on new Waja
starting next month. As a result of this information, today’s demand curve for
Waja

a. shifts to the right.

b. shifts to the left.

c. shifts either to the right or to the left, but we cannot determine the direction of
the shift from the given information.

d. will not shift; rather, the demand curve for Mustangs will shift to the right next
month.

13. Which of the following is consistent with the law of demand?

a. An increase in the price of a tape causes an increase in the quantity of tapes
demanded.

b. An increase in the price of a soda causes a decrease in the quantity of soda

demanded.

c. A decrease in the price of a gallon of milk causes a decrease in the quantity of

milk demanded.

d. A decrease in the price of juice causes no change in the quantity of juice

demanded.

14. A drop in the price of a compact disc shifts the demand curve for
prerecorded tapes leftward. From that you know compact discs and
prerecorded tapes are

a. complements.

b. substitutes.

c. inferior goods.

d. normal goods.

15. A reduction in the price of a good

a. shifts the good’s demand curve leftward and also decreases the quantity
demanded.

b. shifts the good’s demand curve leftward but does not decrease the quantity
demanded.

c. does not shift the good’s demand curve leftward but does decrease the quantity
demanded.

d. neither shifts the good’s demand curve leftward nor decreases the quantity
demanded.

16. The figure above represents the market for candy. People become more
concerned that eating candy causes them to gain weight, which they do not
like. As a result, the

a. demand curve shifts from D2 to D1 and the supply curve will not shift.

b. demand curve shifts from D1 to D2 and the supply curve shifts from S1 to S2.
c. demand curve shifts from D2 to D1 and the supply curve shifts from S2 to S1.

d. demand curve will not shift, and the supply curve shifts from S1 to S2.

17. Which of the following correctly describes how price adjustments

eliminate a shortage?

a. As the price rises, the quantity demanded decreases while the quantity supplied
increases.

b. As the price rises, the quantity demanded increases while the quantity supplied
decreases.

c. As the price falls, the quantity demanded decreases while the quantity supplied
increases.

d. As the price falls, the quantity demanded increases while the quantity supplied
decreases.

18. Goods A and B are complementary goods (in consumption). The cost of a
resource used in the production of A decreases. As a result,

a. the equilibrium price of B will fall and the equilibrium price of A will rise.

b. the equilibrium price of B will rise and the equilibrium price of A will fall.

c. the equilibrium prices of both A and B will rise.

d. the equilibrium prices of both A and B will fall.

19. The demand for hot dogs is given by QD = 8000 – 7000P, where QD is the
quantity demanded and P is the price in dollars. The supply for hot dogs is
given by QS = 4000 + 1000P, where QS is the quantity supplied and P is the
price in dollars. Given these supply and demand relationships,

a. At the equilibrium, the price = $0.50 and the quantity = 4500 hot dogs.

b. At a price of $1, there is a shortage of 4000 hot dogs.

c. At a price of $1, there is a surplus of 4000 hot dogs.

d. Both answers A and C are correct.

Section B

Question 1
When the price of the good changes and everything else remains the same, there
is a movement along the demand curve and a change in the quantity demanded.
The changes to the price which affected the quantity demanded are due the
change in the supply of the good. When supply increases due to, for example, a
fall in the price of inputs or improvement in the technology causing the price of
the good to fall and quantity demanded to increase.

When the price of the good changes and everything else remains the same, there
is a
movement along the supply curve and a change in the quantity supplied. The
changes
to the price which affected the quantity supplied are due the change in the
demand for
the goodWhen the price of the good changes and everything else remains the
same, there is a movement along the supply curve and a change in the quantity
supplied. The changes to the price which affected the quantity supplied are due
the change in the demand for the good.
When the price of the good changes and everything else remains the same, there
is a movement along the supply curve and a change in the quantity supplied.
The changes to the price which affected the quantity supplied are due the
change in the demand for the good.
Equilibrium in a market occurs when the price balances the plans of buyers and
sellers. The equilibrium price is the price at which the quantity demanded
equals the quantity supplied. The equilibrium quantity is the quantity bought
and sold at the equilibrium price
Question 2
a ) P=2, Qs = 2+4 (2) = 10
Qd = 20-2 (2) = 16
Qd > Qs, so the market is not in equilibrium.
Shortage = 6 units.
b)

Equilibrium is where Qd = Qs => 20-2P = 2+4P

=> P=3 and Q = 14.
Question 3

Question 2
Given the following demand
and supply functions of
product X (units/day).
Demand : Qd = 20 – 2P
PRICE

D
3
S
0 QUANTITY
14

Supply : Qs = 2 + 4P
a) Currently, price = 2, is the
market in equilibrium? if not,
is there a shortage and
surplus and how many units?
P=2, Qs = 2+4(2) = 10
Qd =
20-2(2) = 16
Qd> Qs, so the market
is not in equilibrium.
Shortage = 6 units.
b) Graph the demand and
supply. Label the equilibrium
price and equilibrium
quantity.
Equilibrium is where Qd = Qs,
solving 20-2P = 2+4P. We find
P*=3 and Q* = 14.
Question 3
Suppose that the demand and
supply for standard
microwaves is described by
the
following equations: QD =
20,000 – 100P and QS = –
1,000 + 50P where P is the
price in dollars; QD is the
quantity demanded in units per
month; QS is the quantity
supplied in units per month.
a) Solve for the equilibrium
price and quantity.
At equilibrium: QD =
QS20,000 – 100P = –1,000 +
50P
21,000 = 150P
140 = P
The equilibrium price is $140
per unit.
QD = 20,000 – 100(140) =
6,000 or
QS = –1,000 + 50(120) =
6,000
The equilibrium quantity is
6,000 units per month
a) At equilibrium:
Qd = Qs*20,000 – 100P = –1,000 + 50P
=> 21,000 = 150P
=> 140 = P
The equilibrium price is $140 per unit.
Qd = 20,000 – 100(140) = 6,000
Qs = –1,000 + 50(120) = 6,000
=> The equilibrium quantity is 6,000 units per month
b) Qs1 = –1,000 + 50(P – 30) = -1000 + 50P -1500 = -2500 + 50P
New equilibrium: Qd = Qs1
=> 20000 – 100P = -2500 + 50P
=> 150P = 22500
=> P = 22500/150 = $150 per unit = Pb1
We have : Ps1 = Pb1 – Tax = $150 - $30 = $120 per unit.
Qs = –1,000 + 50(P – 30)
=> 20,000 – 100P = –1,000 + 50(P – 30)
=> 20,000 – 100P = –1000 + 50P – 150022,500 = 150PP= $150
The consumer will pay $150 per unit.
Qd = 20,000 – 100(150) = 5,000
Qs = –1,000 + 50(150 – 30) = 5,000
The equilibrium quantity is 5,000 units per month.
5000 = –1,000 + 50(P) 6000 = 50PP = $120
The producer will receive $120 per unit.
Question 4:
a)
 p S

P2

b ) 60 units
c) The market demand curve shifts to the left. Textbooks always illustrate
changes in demand with the help of a parallel shift of the demand curve. It is
noteworthy that a 20-percent decline in demand does not lead to a parallel shift.
Question 5:
a)
Price Quantity supplied
$1 26
$2 32
$3 39
$4 51
$5 67
$6 83

b) Price increases are accompanied by increases in market supply. The ability of

the existing producers to substitute the production of one product for another
product and also with the entry of new sellers into the market account for this
relationship

Section C :
Question 1 :
a) A rise in real incomes
 P1

D2

A rise in real incomes is likely to D1 lead to

Q1 q
Q2
an increase in the demand for houses since housing is generally regarded as a
normal good. This will cause the demand curve to shift outwards from D0 to D1
in the diagram above. The new market equilibrium is now at e1, where D1
intersects S. This causes the equilibrium price and quantity traded of the good
to rise
b) A fall in the rate of interest on loans for house purchases for an extended
period of time

p S

P2

P1
D2

D1

Q1 Q2 q
A fall in the rate of interest on loans would most likely increase the demand for
houses. This will cause the demand curve to shift outward from D0 to D1 in the
diagram above. This causes the equilibrium price and quantity traded for the
good to rise. The new market equilibrium is now at e1, where D1 intersects S.
This causes the equilibrium price and quantity traded of the good to rise.

c ) A rise in the level of taxes to be paid on the sale of a house.

p
S2

P2 S1
P1
D
A rise in the level of taxes paid on the sale of a house would reduce supply
Q1 Q2 q
since the net price received by sellers
would fall, and thus fewer people would want to sell their house at any given
price. This will cause the supply curve to shift backward from S0 to S1 in the
diagram above. This causes the equilibrium price and quantity to rise traded of
the good to fall.

d ) The relaxation of planning controls allowing more land to be used for

building new houses.
 Price

D
A relaxation of planning controls,

Q1 Q2 q
allowing
more land to be used for building,decrease the costs that house builders face,
causing supply to increase. This will cause the supply curve to shift outward
from S0 to S1 in the diagram above. This causes theequilibrium price to fall and
quantity traded of the good to rise.

Question 2 :
a)

Price
S’

P’ S

Q’ q Quantity
Given a market for beef with a demand curve (D), a supply curve (S), and an
initial equilibrium (price, quantity) combination (p, q), an outbreak of disease
affecting the beef stock will result in a backward shift in the supply curve for
beef to S’, yielding a new equilibrium (p’, q’): price increases and quantity
traded decreases

b)
 S’

P’ S

p
D

Q’ q Quantity
Given a market for beef with a demand curve (D), a supply curve (S), and an
initial equilibrium (price, quantity) combination (p, q), an increase in the costs
of producing beef will result in a backward shift in the supply curve for beef to
S’, yielding a new equilibrium (p’, q’): price increases and the quantity traded
decreases.
c)

Price S
P’

p
D
D’

q Q’ Quantity

Given a market for beef with a demand curve (D), a supply curve (S), and an
initial equilibrium (price, quantity) combination (p, q), a successful advertising
campaign for beef will result in an outward shift in the demand curve for beef to
D’, yielding a new equilibrium (p’, q’): price and quantity traded increase.