PRINCIPLES OF MICROECONOMICS INSTRUCTOR: MSc.

NGUYEN VIET HOA

(0378418749)
CHAPTER 2: SUPPLY, DEMAND AND GOVERNMENT POLICIES
PART 1: ANSWER TRUE OR FALSE WITH SHORT EXPLANATION
1. The law of demand states that an increase in the price of a good decreases the demand for
that good and results in a leftward shift in demand curve.
2. The market demand curve is steeper than the individual demand curves.
3. The market supply curve is flatter than the individual supply curves.
4. Engel curve reflects the relationship between price and quantity demanded of a good.
5. The fact that a good is a normal good or an inferior good depends on the goods’ quality.
6. Suppose the demand function for good X is QDx = g.PX + h.PY + k (g,h,k are constant). If
g.h<0 then X and Y are complementary goods.
7. Suppose the demand function for good X is QDx = g.PX + h.PY + k (g,h,k are constant). If
g.h>0 then X and Y are substitutes.
8. A downward sloping demand curve and an upward sloping supply curve may not intersect
each other.
9. A decrease in price of beef will lead to a rightward shift in the demand curve of pork.
10. A rise in price of gasoline will lead to a rightward shift in the demand curve of motorbike.
11. A decrease in price of apple will lead to a rightward shift in the supply curve of apple.
12. When income increases, the equilibrium price will definitely increase.
13. When income decreases, the equilibrium quantity always increases.
14. Equilibrium price will change only when supply and demand curves shift simultaneously.
15. If an increase in the price of good A leads to a decrease in the price of B then A and B are
substitutes.
16. If X and Y are complementary goods, an increase in the price of X will lead to an increase
in the price of Y.
17. If apples and oranges are substitutes, an increase in the price of apples will lead to a decrease
in the price of oranges.
18. Due to an information that lipsticks contain carcinogens, equlibrium price and quantity of
lipsticks decrease.
19. The growing concern about the quality of foods and vegetables which have unknown origin
lead to a rise in the price of foods and vegetables with clear origin.
20. The fact that government imposes tax on the sellers of unhealthy foods lead to a decline in
both the price and quantity of unhealthy foods.
21. The fact that government subsidizes for the producers of healthy food lead to a rise in the
price of healthy food and a decline in the quantity of healthy food.

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PRINCIPLES OF MICROECONOMICS INSTRUCTOR: MSc. NGUYEN VIET HOA
(0378418749)
22. If pencils and paper are complements, an increase in the price of pencils will result in an
increase in the equilibrium price and quantity in the market for paper.
23. If Coke and Pepsi are substitutes, an increase in the price of Coke will result in an increase
in the equilibrium price and quantity in the market for Pepsi.
24. An advance in the technology employed to manufacture HP laptops will result in a decrease
in the equilibrium price and an increase in the equilibrium quantity in the market for HP laptops.
25. If there is an increase in supply accompanied by a decrease in demand for coffee, then there
will be a decrease in both the equilibrium price and quantity in the market for coffee.
26. In the market for good A, if price of input increases and price of complementary good
decreases then the equilibrium price of A will increase.
27. Wages for iPhone workers increases and Samsung Galaxy’s price increases as well. This
makes iPhone’s quantity decreases and effect on iPhone’s price is ambiguous (assume that
iPhone and Samsung Galaxy are substitutes).
28. In the market for coffee, if wages for coffee picking workers decreases and price of tea
declines then the equilibrium quantity of coffee will increase.
29. If both consumer and producer expect that the price of good X will fall in the future then
the equilibrium quantity of good X will increase.
30. The simultaneous shift in supply and demand to the right will result in an increase in the
equilibrium price.
31. When supply curve shifts leftward and demand curve shifts rightward at the same time,
equilibrium quantity will definitely increase.
32. A weaker demand coupled with a stronger supply does not necessarily result in lower
quantity.
33. If the equilibrium wage rate is $3 per hour and the regulation on minimum wage is $2.5 per
hour, a surplus of labor will exist.
34. If the equilibrium wage rate is $2 per hour and the regulation on minimum wage is $2.5 per
hour, a shortage of labor will exist.
35. Surplus creates pressure to push up the market price, while shortage creates pressure to push
down the market price.
36. Price ceiling would always cause shortage in the market.
37. The fact that government imposes a price floor on the market for good X will cause a surplus
in this market.
38. Government imposes a price ceiling with the aim of protecting the domestic producers.
39. By dint of imposing price floor, government can protect the consumer.
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PRINCIPLES OF MICROECONOMICS INSTRUCTOR: MSc. NGUYEN VIET HOA
(0378418749)
PART 2: DISCUSSION
1. After 2 days of launching the program “Joining hands to rescue watermelons for farmers in
Binh Dinh province” with the support of Social Media in transmitting the information of the
program community, the program has been widely spread to people in Quy Nhon city. The
melons were collected at the gardens and carefully loaded into the trucks on the night of
February 22nd , 2020. The watermelons will be gathered at the Hai Au Hotel as planned. How
does this event affect the watermelon market’s equilibrium price and quantity?
2. According to the e-magazine Vneconomy on June 18, 2021: "Chinese authorities encourage
farmers to promote pig farming and find the fastest possible ways to fill national pork reserves."
In addition, due to the fear of African swine fever, many Chinese people switched from pork to
consuming other foods such as poultry and eggs (Christensen, 2020). Explain the impact of the
above events on price and quantity in the pork market in China.
3. The trend of porcelain flower hairpins has been popular since the design of the hairpin brand
Emi Jay (USA). Following the trend VnExpress on May 15th, 2024 states that many Vietnamese
copycat manufacturers have increased supply, and are being advertised by users on social
networks causing an increase in demand. Discuss the change in the equilibrium price and quantity
of porcelain flower hairpins in Vietnamese market.
4. To meet increasing travel demand during the upcoming Lunar New Year, Vietnam Airlines is
going to add three new aircraft this month (according to VnExpress, 11 December 2024). How
does this event affect the air travel market’s equilibrium price and quantity?
5. The durian prices plummet despite limited off-season supply. Many Chinese importers reduce
purchase prices and many shipments were returned because of the heavy metal contamination in
durian. Discuss the price and quantity change in the durian market.
6. Thanks to the shuts in and natural declines of non-OPEC++, demand for OPEC++ have been
recovered this month. At the same time, OPEC++ have decided to reduce their quantity. Discuss
the impact of these events on the price and quantity of OPEC ++ during this month in
comparison with last month.
7. Due to the impact of COVID-19 pandemic on airline industry, the proportion of foreign
passengers decreased by 30-40% in April. In addition, the oil price also decreased by 8-10%
per month during this period. Discuss the impact of these events on the price and quantity of
Vietnam Airlines at that time as well as Vietnam Airlines’s decision in this case.
8. In 2013, Lexus launched a new model of cars, but there was no new model produced until
2020. There is a perception that the slowdown of Lexus’s new products has made it lagging
behind German carmakers such as Audi or BMW. Discuss the price and quantity of Lexus and
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PRINCIPLES OF MICROECONOMICS INSTRUCTOR: MSc. NGUYEN VIET HOA
(0378418749)
other German car models in the year 2013 and 2020.
9. Garment production has been mostly affected by the global COVID-19 pandemic so far, with
exports decrease by about 9% this year. Industry insiders have said that around 20% of garment
makers’ orders have been cancelled. By contrast, Vietnam’s mobile phone production and
exports are still up marginally this year. Discuss the impact of these events on export price and
quantity.
10. According to FAO (Food and Agriculture Organization of the United Nations), the quantity
produced of rice in the world market is estimated at 496 million tons, down about 0.6%
compared to 2019. Consumption of rice in the world market is projected to reach 490 million
tons in 2020, up around 0.9% against 2019. Discuss the the impact of these events on the price
and quantity of rice in the world market in the year 2020.
11. Due to the outbreak of COVID-19 pandemic at the beginning of 2020, there is a sharp growth
in the number of people who rushed to buy face masks in order to protect their health. At the
same time, the number of pharmacies selling face masks also rises dramatically. Discuss the the
impact of these events on the price and quantity of face masks during this period.
12. Before the outbreak of COVID-19 pandemic, the Prime Minister of Vietnam decided to raise
the minimum wage for workers. However, when COVID-19 started to spread into Vietnam,
this policy had been postponed in order to save money for urgent cases. Discuss the impact of
these events on the price and quantity of food in Vietnam’s market during these 2 periods.