Scribd
Upload
25 views

Problem Set 1

1. The document contains a series of exercises related to managerial economics and comparative statics analysis. It includes questions about how changes in factors like prices, consumer incomes, and weather would affect the equilibrium price and quantity of ice cream. 2. One exercise asks students to represent the market for ice cream in Paris using a supply and demand graph and analyze how changes like a price increase in milk or a medical study would shift the supply and demand curves and impact the new equilibrium. 3. Other exercises address topics like the recent drop in oil prices, pricing strategies for concerts, and the winners and losers of globalization in trade between closed and open economies. Students are asked to illustrate their answers using supply and demand

Uploaded by

smartlearning1977
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
25 views

Problem Set 1

1. The document contains a series of exercises related to managerial economics and comparative statics analysis. It includes questions about how changes in factors like prices, consumer incomes, and weather would affect the equilibrium price and quantity of ice cream. 2. One exercise asks students to represent the market for ice cream in Paris using a supply and demand graph and analyze how changes like a price increase in milk or a medical study would shift the supply and demand curves and impact the new equilibrium. 3. Other exercises address topics like the recent drop in oil prices, pricing strategies for concerts, and the winners and losers of globalization in trade between closed and open economies. Students are asked to illustrate their answers using supply and demand

Uploaded by

smartlearning1977
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 3

Managerial Economics

HEC Paris – MBA Program

Problem set 1
Please prepare before the second sessions 3 and 4.

Exercise 1 – Review (comparative statics I)

Illustrate in a diagram and explain briefly (by making clear assumptions) how each of the
following events affects the equilibrium price and quantity of ice creams:

1. The price of milk rises.

2. A new medical study has shown that chocolate bars are good for your health.

3. The incomes of consumers rise, and ice creams are a normal good.

4. Summer suddenly turns out to be very hot.

5. The government sets a maximum price for ice creams during this very hot summer.

6. The price of milk rises AND the summer suddenly turns out to be very hot.

Exercise 2 – Review (comparative statics II)

Consider the market for ice cream in Paris.

1. Represent this market in a diagram. Be specific about what the vertical and the
horizontal axis represent. What is the equilibrium? Be very precise.

2. Imagine that the price of milk increases. Explain in words the immediate effects (if any)
on demand and supply. Illustrate this in the same graph or in a new graph. What is the
new equilibrium? Again, be very precise.

3. Back to scratch. Imagine a widely reported medical study suggests that eating ice
cream will make you smarter. Explain in words the immediate effects (if any) on
demand and supply. Illustrate this in the same graph or in a new graph. What is the
new equilibrium? Again, be very precise.

4. Back to scratch. Imagine that the price of milk increases AND that a widely reported
medical study suggests that eating ice cream will make you smarter. What effects will
this have on the overall equilibrium? Illustrate in a graph.

5. Back to scratch. A newly elected government believes ice cream has gotten too costly.
They decide to implement a maximum price. What happens if this price is set above
equilibrium? What happens if the price is set below equilibrium? Why would you
criticize the measure described in (d) from a microeconomic standpoint? Explain in
words and illustrate with a graph.

Exercise 3 – Big drop in oil prices and expected prices

Consider the assigned case study on the big drop in oil prices.

1. Explain, with a graph, the supply-side and demand-side phenomena that led to the
price drop.

2. A theory suggests that low oil prices today will lead to much higher prices tomorrow.
Using the graph in (1), explain why this could be the case.

3. An alternative theory suggests that prices may be durably low. The other required
reading by Spencer Dale, the Chief Economist at BP, defends this theory. Explain why,
relying on microeconomics.

Exercise 4 – Pricing strategies

In a concert room, the number of seats is fixed and constrained by the concert venue.
Demand, on the other hand, follows the usual relationship we saw in class. Imagine you’re
the group manager and you are planning a concert at the Stade de France.

1. What does P1 represent? Answer in plain English. Hint: if you are using the word
“equilibrium,” the answer is not in plain English.

2. Why would you ever choose P2 over P1? What revenues would you be forgoing? What
value could you create for yourself (the manager)? Be clear on the strategy that you
would be pursuing in this case.

3. Why would you choose P3 over P1? What revenues would you be forgoing? What value
could you create for yourself (the manager)? Be clear on the strategy that you would
be pursuing in this case.

For each question, you should provide a visual for the value that you are creating for yourself
(the producer).
Exercise 5 – The winners and losers of globalization

Imagine this a local/national economy with no economic ties to the rest of the world. Any
given market – say, for shoes for instance – will reach equilibrium in autarky as discussed in
class. You can identify a consumer surplus and a producer surplus.

Imagine now that the country opens up and that cheaper shoes are available from abroad.
On this market, the price will drop to the level of the world price for the good, which is lower
than the autarky price.

1. Illustrate this in a graph.

2. How much is consumed, how much is produced locally in this economy?

3. Where is the difference coming from?

4. Overall, is this good or bad for the economy?

5. Why will it be hard to sell politically? Consider the reading “The Global Economy’s Next
Winners”. Can you relate the authors’ argument to what you found?

You might also like