THE INSTITUTE OF FINANCE MANAGEMENT CHUO CHA USIMAMIZI WA FEDHA

#BEF AND BBF

TUTORIAL QUESTIONS (SET TWO)

ACADEMIC YEAR 2024/2025

TOPIC TWO: DEMAND, SUPPLY AND EQULBRIUM ANALYSIS

1. What is demand? How does it differ with the need/want?

2. Explain on the law of demand. What are the conditions for the law of demand to
hold?

3. Briefly explain on the main exceptions to the law of demand. Explain the factors
which cause a shift in demand curve.

4. Differentiate between movement along the demand curve and the shift in demand
curve.
5. Give the economic meaning of the following terms;

(a) Substitute goods

(b) Complementary goods
(c) Normal goods
(d) Inferior goods
(e) Giffen goods
(f) Veblen goods

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 (g) Utility

7. Write short notes on the following concepts:

a) Price elasticity of demand,
b) Income elasticity of demand,
c) Cross elasticity of demand.
d) Consumer’s Surplus,
e) Producer’s Surplus,
f) Price ceiling,
g) Price Floor

8. Explain by the use of graph what happens on the equilibrium price and quantity when;

(a) Demand decreases while supply is unchanged

(b) Demand increases while supply is unchanged
(c) Both demand and supply increase but demand increase more than supply
(d) Both demand and supply increase but supply increase more than demand
(e) Both increase at the same rate
(f) Both decrease at the same rate
(g) Supply increases while demand remain unchanged
(h) Supply decreases while demand remain unchanged

9. What is price control? What re the consequences associated with the mechanism of
price control?
10. Differentiate between the following
(a) Individual demand curve and Market demand curve

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 (b) Individual demand and Market demand
(c) Change in demand and Change in quantity demanded (use graph)
(d) Giffen goods and Inferior goods

11. Differentiate between the following

a) Price floor and Price ceiling
b) Consumer’s surplus and Producer’s surplus.
c) Arc elasticity of demand and point elasticity of demand.

12. State the Law of Supply and its underlying assumptions. What are the factors
responsible for shift in supply curve?

13. What are the determinants of supply? Differentiate between movement along the
supply curve and the shift in supply curve.

14. Given the following supply function; Qss = 12 + 8P where Qss is the quantity
supplied and P is the price of the commodity. Calculate elasticity of supply when P = 4
units and comment on your answer.

15. What is Market equilibrium?

16. Given demand and supply functions of good X as follows; Qdd = 50 – 3P and
Qss = 10 + 7P whereQdd andQss are quantity demanded and quantity supplied
respectively and P is the price of that commodity. Calculate the market clearing price
and quantity and substantiate your answer by using graph.

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17. (a) Define Demand and Supply of a commodity.
(b) The supply curve of tomatoes at Mwembemchomeke Market is Qs = 25,000 +
7.5P, where;
QsIs the quantity supplied of tomatoes in kilograms per month
P is the price of tomatoes in shillings per kilogram,
(i) If the demand curve for tomatoes is a vertical line at Qd = 40,000 kilograms
per year and if the government imposes a price ceiling of 500T.shs. per
kilogram on tomatoes, will there be an excess supply or excess demand of
tomatoes and how big will it be? Show graphically.
(ii) If the government’s price floor is set at 3000 Tshs. Per kilogram, will there be
an excess supply or excess demand of tomatoes and how big will it be?
Show graphically.
18. Briefly explain the following and postulate their economic meanings;
a) Elasticity of supply
b) Supply curve
c) Market clearing price
d) Market clearing quantity
e) Joint supply
f) Excess demand
g) Excess supply
h) Supply function
i) Supply market schedule.

19. Mustaneer, a sovereign consumer has the following demand function for his food,
Qdd = 150 – 10P; Find the following
(a) Point elasticity at a point when P = P0
(b) Arc elasticity for prices between P0 and P1

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20. Find the price elasticity of demand for a good if a 15 percent decrease in the price of
the good results in a 45 percent increase in quantity demanded. Is the demand for the
good elastic or inelastic?

21. Mofard’s income was 50 USD when her quantity demand for good X and good Z were
15 units and 35 units respectively. When her income increased to 80 USD, her quantity
demand for good X increased to 20 units while that of good Z decreased to 25 units.
(a) Calculate income elasticity of demand for good X and good Z
(b) Comment on your answer.

22. When price of good X was 10 unit per unit quantity, Mustaneer’s demand for good Y
was 50 units. When price of X increased to 15 units, Mustaneer’s demand for good Y
increased to 60 units.
(a) Calculate cross elasticity of demand
(b) Comment on your answer.

23. Given the following demand function for good X; Qx = 20 – 5Px where Qx is the
quantity demanded for good X and Px is the price of good X.
(a) Estimate price elasticity of demand when price is 3 units.
(b) Comment on your answer.

24. If the income elasticity of demand for a good is – 2.5, find the change in quantity
demanded that will result from a 10 percent decline in income. Classify the good as
income superior, income independent or income inferior. Explain your answer.

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25. (a) What are the factors that determine the quantity demanded for a given product?
(b) Mustaneeras a sovereign consumer found that, the individual supply and demand
curves for Watermelon at Darajani Market are given by:
Qs = - 100 + 40P ------------- (i)
Qd = 16 – 2P ------------------- (ii)
If there are 1000 identical buyers and 100 identical suppliers, find and plot the
market demand and supply curves and the market equilibrium price.

26. Define the term “Elasticity of demand”.

(a) Explain the factors which determine the elasticity of demand
(b) What are the practical usefulness of elasticity of demand?
(c) It is believed that, businesspersons use the idea of elasticity of demand in the setting of
prices and raising their total Revenues. Do you agree on this statement? Substantiate
using graph.
27. After a careful statistical analysis, TIGO Express Yourself concluded that the demand
function for their service in Tanzania is Qdd = 500 – 0.3P + 2Pr – 0.1Y. where;
Qdd is the quantity demanded for TIGO services
P is the Jazaujazwe price of TIGO
Pr is the price of its rival (Vodacom), and
Y is the per capital disposable income of consumers
At present, P = 100 units, Pr = 200 units and Y = 60,000 units
(a) What is the price elasticity of demand for TIGO Express Yourself?
(b) What is the income elasticity of demand?
(c) What is the cross elasticity of demand between TIGO Express Yourself
andit’s rival?

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 28. Suppose the demand and supply equation of Shawarma in Zanzibar city are described
as Qdd = 20 – 2P and Qss = 10 + 0.5P where Qdd, Qss and P are quantity
demanded, quantity supplied and price respectively. Calculate;
(a) The equilibrium price and quantity and substantiate your answer by using graph.
(b) Would a government set a price of 3.5 units create a surplus or a shortage of
Shawarma?
(c) How much is 3.5 units a price ceiling or a price floor?

29. There are only two suppliers of vehicles in a market; TOYOTA and NISSAN. Their
supply functions are as follows; TOYOTA: SS_Tyt = 90 + 18P and NISSAN:
SS_Niss = 14 + 2P
Determine elasticity of supply for both TOYOTA and NISSAN as well as for the
market when price is 4 units.

30. Suppose that the following demand function for the commodity X has been estimated
by an econometrician at the suburb city of Zanzibar: Qx=4000-2Px+0.004Y+3Py:

Where

Qx, is the quantity of commodity X,

Px, is the price of commodity X,

Y, is the income and

Py, is the price of related commodity

Required

i. Develop a demand schedule for the commodity X over the price range Px=Tshs10 to
Px=24; if Y=T.sh 120 and Py=T.sh 40. (Hint: use Tsh 2 change in Px over the range).

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 ii. Assuming that the values of Y and P are held constant, write an equation for
the demand curve for the commodity X.

iii. Explain on the relationship between commodity X and the income of consumer
31. The supply of shawarma at Darajani market is dominated by the Palestinians and
Lebanese with supply functions of Qs1 = 60+ P and Qs2 = 80+ P respectively .The
inverse demand functions are P=100-0.5Q2 for MEN and P=150-0.5Q1 for women. If
shawarma is eaten by the whole society, find
(a) Equilibrium price and quantity graphically
(b) The quantity demanded by MEN and WOMEN at the equilibrium.
(c) The quantity supplied by Lebanese and Palestinians at the equilibrium.
(d) If the government set the price of 70 will the market experience shortage or
surplus?
(e) How much is the shortage or surplus?

32. The markets of chocolate in Msasani and Oyster bay are described by the following
equations;
−Q Qss = 10 + 4P1 and Qss = 3P2
Demand function P= + 50 and Supply functions are
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where as P1 and P2 are the prices of chocolate in Msasani and Oyster bay respectively.
(i) Compute the chocolate market clearing price and quantity

(ii) Substantiate your answer by using graph

(iii)Would the government establish P = 8 shilling per unit create surplus or

shortage of chocolates?
(iv) How much is that surplus or shortage?

(v) Given that government price is P = 8 shillings, would this action favor suppliers

or consumers of chocolate?

33. The government wants to combat the problem of increasing house rental rates in

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Masaki by instituting rent control that would place a 900$ per month ceiling on
apartment rental rates. The demand and supply are given as Qd = 5,600 - 2P and Qs = -
400 + 2P
(a) Calculate the equilibrium price and quantity
(b) What is the price elasticity of demand at equilibrium?
(c) Calculate the shortage as a result of $900 per month price ceiling
(d) Calculate the price floor that will yield a surplus of 1,800