ECO111 Microeconomics

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STUDENT INFORMATION
Name: NGUYEN DINH TUAN NGUYEN Roll number: HS180362
Room No: BE 304 Class: MKT1830

FOR TEACHER ONLY

Individual Assignment 02

Question 1. (2 points)

1. You can allocate your time for the next four years between studying and working at a car
wash. Each semester you spend studying you can earn 15 credit hours and each semester you
work at the car wash you wash 800 cars. If you have 8 semesters to allocate, label each of the
following on a graph.
a. Your production possibilities curve (0.5)
Each semester you spend studying you can earn 15 credit hours and each semester
you work at the car wash you wash 800 cars.=> three hour you spend for studying
requires 160 cars you wash in 8 semesters:
b. A point that is unattainable (0.5)
Point G
c. A point that is efficient (0.5)
Point D
d. Plot and label a point on your graph that represents a decision to take a semester off from
both studying and working. (0.5)
Point E
 2. Refer to the graph provided to answer the following questions. (2 points)
Price
Supply

3
Demand

0
100 175 220 Quantity demanded

a. What are the equilibrium price and quantity in this market? (0.5)
At the equilibrium:
The price equals: P = 5
The quantity equals: Q= 175
b. What is the effect of a price ceiling of $3 placed on this market? (0.5)
When the price ceiling of $3 placed on this market, a shortage occurs.
Then, the quantity of demand equals: QD= 220
and the quantity of supply equals: QS= 100
=> The shortage equals: 220 – 100 = 120
c. What is the effect of a price ceiling of $7 placed on this market? (0.5)
The price ceiling of $7 placed on this market does not effect on the market outcomes;
because the price ceiling is above the equilibrium price.
d .If price in this market is $7, explain the adjustment process that will bring the
market back to equilibrium. (0.5)
If the price in this market is $7, a surplus occurs (the surplus equals 120). This event
leads the firms to lower their price until there’re no more surplus (at the equilibrium price)

3. Graph the effect on equilibrium price and quantity in the market for oranges for each
of the following changes (graph each one separately). (2 points)
a. A chemical routinely sprayed on orange orchards is found to cause cancer.(0.5)
Event: A chemical routinely sprayed on orange orchards is found to cause cancer.=> The
demand for oranges falls
=> The D curve shifts left.The shift causes a decrease in equilibrium price and quantity
 Q2 Q1 Q
b The wages of farm workers increase. (0.5)
Event: The wages of farm workers increase.=> S curve shifts left.
The shift causes price to increase and quantity to fall.

c. A new orange picking machine is invented. For the same cost, it can pick more oranges,
faster, and with less damage than other machines. (0.5)
Event: A new orange picking machine is invented. For the same cost, it can pick more
oranges, faster, and with less damage than other machines=> The firms will supply more
oranges => The S curve shifts right.
The shift causes price to fall and quantity to increase.
d. Consumer income falls. (0.25)
Event: Consumer income falls => base on how good the oranges are
Case 1: normal good => The demand for oranges falls => The D curve shifts left
The shift causes a decrease in price and quantity.

Case 2: inferior good=> The demand for oranges increases => D curve shifts right The shift
causes an increase in price and quantity
 e The price of tangerines falls. (0.25)
Event: The price of tangerines falls=> The demand for oranges falls => The D curve
shifts left.
The shift causes a decrease in price and quantity

Question 2 (2 points)
1. You operate your own business selling college t-shirts. The demand schedule for
your t-shirts is as follows: P = 25 - 0.5Q.

a. Graph the demand curve for your t-shirts. (0.5)

b. Calculate the price elasticity of demand when price equals $10. (0.5)
Price elasticity of demand when the price is $10 equals

c. In what range does price elasticity of demand fall at $10 (elastic, unit elastic,
inelastic)? (0.5)
Price elasticity of demand fall at $10 in inelastic demand curve (E<1)
d. If your goal is to maximize total revenue, how should you change price if you are
currently charging $10? (0.5)
TR = P x Q
 If you are currently charging $10, to maximize total revenue, you have to raise your
price (between $10 and $20)

2a.Use the information in the graph below to find price elasticity of supply at point A.
(0.25)

Price Supply

4 A

0 20 30 Quantity Demanded
4 = x + 20y => x = -2 => e = 4/20 x 1/0,3 = 0,67 7 = x + 30y => y = 0,3

2b. Based on the elasticity of supply in part a, if price increases by 10%, by how much
will quantity supplied change? (0.25)
If the price increases by 10% then the supply increases by 20% because elasticity = 2
2c. What will happen to the price elasticity of supply, in each of the following cases
(becomes more inelastic, more elastic, or does not change)? (0.5)
i. inputs become easier to transport Increase S and decrease D
ii. new inputs into production of the good are found Increase S and decrease D
iii. the firm moves from the short-run to the long-run
Increase S and decrease D. Because when you sell short-term you have to sell low price to
attract buyers, while you sell long-term you can let higher prices..
Question 3. Which of the following is true for a vertical supply curve? (1point)
a. Price elasticity of supply is perfect elastic
b. Quantity supplied is very responsive to price changes
c. Price elasticity of supply is inelastic
d. Price elasticity of supply is infinite
e. Quantity supplied is negatively related to price