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Exercise+Handout +h3

This exercise handout provides an introduction to microeconomics, focusing on consumer demand and supply concepts. It includes a series of overview questions and exercises related to demand curves, opportunity costs, market effects of various events, and equilibrium pricing in different markets. The document aims to enhance understanding of fundamental economic principles through practical applications and graphical representations.

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Leanne Layug
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6 views3 pages

Exercise+Handout +h3

This exercise handout provides an introduction to microeconomics, focusing on consumer demand and supply concepts. It includes a series of overview questions and exercises related to demand curves, opportunity costs, market effects of various events, and equilibrium pricing in different markets. The document aims to enhance understanding of fundamental economic principles through practical applications and graphical representations.

Uploaded by

Leanne Layug
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
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EXERCISE HANDOUT

INTRODUCTION TO MICROECONOMICS

PART 1: THE CONSUMER


H3: DEMAND AND SUPPLY

OVERVIEW QUESTIONS
1. What determines the demanded quantity of a good?

2. Does a change in the taste of consumers lead to a movement along the demand curve
or a shift in the demand curve?
Does a price change lead to a movement along the demand curve or a shift in the demand
curve?

3. Francine's income is falling, and she is now buying more cabbage. Is cabbage an
inferior good or a normal good? What happens with Francine's demand curve for cabbage?

4. Does an improvement in the technology used by producers lead to a movement


along the supply curve or to a shift in the supply curve? Does a price change lead to a
movement along the supply curve or a shift in the supply curve?

EXERCISE 1. 1

Explain what is meant by the well-known economic "wisdom": "There is no such thing as a
free lunch"

a. If you go for lunch you have to pay at least the price of the ingredients
b. Going to lunch means that you cannot do another (valuable) activity at the same time
c. If you are offered a free lunch, you must always be careful that they do not try to sell you
another product at the same time
d. Free lunches are of such poor quality that they are not worth eating - so they are not
really lunch

EXERCISE 1.2

You win a free ticket for a performance by De Jeugd van Tegenwoordig today. You cannot sell
the ticket. Angèle will also perform this evening and this concert is the only alternative you are
considering. Your willingness to pay for a ticket for Angèle is € 50. The price for the Angèle
concert ticket is € 40. There are no other costs associated with attending both
performances. How large is your opportunity cost to attend the concert of De Jeugd van
Tegenwoordig tonight?
EXERCISE 1.3

Consider the European market for meat and fish.


Show the effect of the events below on market demand and/or market supply
graphically. Explain.

1) Campaign about the negative impact of meat on health


2) General introduction of " Thursday veggie day "
3) A sudden economic crisis resulting in high unemployment
4) Persistent drought
5) Conflict in Middle East resulting in an increase of oil price
6) Fodder becomes more expensive
7) European directive prohibits fishing in certain waters and/or periods

EXERCISE 1.4

A conflict in the Middle East jeopardizes the oil supply from that region. Illustrate this event
using a demand and supply graph and explain what is happening in the (world) market for oil
and on the market for second-hand Mercedes cars. How do the equilibrium price and quantity
of oil for second-hand Mercedes cars change?

EXERCISE 1. 5

"An increase in demand for mozzarella raises the quantity of mozzarella demanded, but not the
quantity supplied." Is this statement correct or incorrect? Explain

EXERCISE 1.6
Suppose that the price of tickets to see your local football team play at home is determined by
market forces. Currently the demand and supply are as follows:

price Amount demanded Quantity supplied

€ 10 50,000 30,000

20 40,000 30,000

30 30,000 30,000

40 20,000 30,000

50 10,000 30,000
a) Draw the market demand and the market supply. What do you notice about this supply
curve?

b) Derive from the table the equilibrium price and the equilibrium quantity of tickets.
Indicate these on the graph.

c) The team wants to increase the overall capacity of the stadium by 5,000 extra seats next
season. What entrance fee do they charge?

EXERCISE 1. 7

After a market research, it appears that the market demand for chocolate is Qd = 1600 - 300p
and the market supply is Qs = 1400 + 700p.

a) Represent graphically the market demand and the market supply of chocolate bars.

b) Calculate the equilibrium price and equilibrium quantity.

EXERCISE 1.8

In a pleasant municipality on the Belgian coast, Nadia is the only supplier selling beach
balls. Her supply is Qs = 5p and Nadia is confronted with a demand Qd = 32-3p.

a) Draw the market demand and market supply of beach balls.

b) Calculate the equilibrium price and quantity in the market for beach balls and show this
graphically.

c) Suppose Nadia sells the beach balls for 5 euros each. Calculate the q u a n t i t y
demanded and supplied at this price. Show this graphically.

EXERCISE 1.9

The domestic (Belgian) demand for Belgian apples is given by the inverse demand function:
p = 10 - q. Belgian apples are also demanded abroad. The foreign inverse demand function is
p = 8 - 2q.

a) Draw the domestic demand curve for Belgian apples.

b) Draw the foreign demand curve for Belgian apples.

c) Draw the total market demand curve (domestic + foreign).

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