EC102: Principles of Microeconomics
Tutorial 2
Solutions
Question 1 multiple choice Questions
Figure 1
1. Refer to Figure 1. The movement from point A to point B on the graph shows
a. a decrease in demand.
b. an increase in demand.
c. a decrease in quantity demanded.
d. an increase in quantity demanded.
2. Refer to Figure 1. The movement from point A to point B on the graph is caused by
a. an increase in price.
b. a decrease in price.
c. a decrease in the price of a substitute good.
d. an increase in income.
3. Refer to Figure 1. It is apparent from the figure that the
a. good is inferior.
b. demand for the good decreases as income increases.
c. demand for the good confirms to the law of demand.
d. good is a normal good.
4. Which of the following changes would not shift the demand curve for a good or service?
a. A change in income.
b. A change in the price of the good or service.
c. A change in expectations about the future price of the good or service.
d. A change in the price of a related good or service.
Figure 2
5. Refer to Figure 2 above. Equilibrium price and quantity are, respectively,
a. $30 and 500 units.
b. $20 and 300 units.
c. $25 and 400 units.
d. $15 and 200 units.
6. Refer to Figure 2. At a price of $15, there would be a
a. surplus of 400 units.
b. surplus of 200 units.
c. shortage of 400 units.
d. shortage of 200 units.
7. Refer to Figure 2. At what price would there be an excess supply of 400 units of the good?
a. $40
b. $30
c. $35
d. $25
Figure 3
8. Refer to Figure 3 above. Which of the following movements would illustrate the effect of an
increase in the price of beach towels on the market for bathing suits?
a. Point C to Point D
b. Point A to Point D
c. Point A to Point B
d. Point C to Point B
9. Refer to Figure 3. Which of the following movements would illustrate the effect of an increase
in the incomes of parents with school-aged children on the market for soccer lessons?
a. Point C to Point D
b. Point A to Point D
c. Point A to Point B
d. Point C to Point B
10. Refer to Figure 3. Which of the following movements would illustrate the effect of an
increase in the price of Kevlar, a material used to make bullet-proof vests, on the market for
bullet-proof vests?
a. Point C to Point D
b. Point A to Point D
c. Point A to Point B
d. Point C to Point B
11. Refer to Figure 3. Which of the following movements would illustrate the effect of an
improved high-speed mixer that allows bakers to produce cakes in less time on the market for
cakes?
a. Point C to Point D
b. Point A to Point D
c. Point A to Point B
d. Point C to Point B
Question 2: Graphical Analysis Question
Figure 4
i. Refer to Figure 4 above. Using the points on the figure, describe the change that would
occur if consumer incomes increase and this is an inferior good.
C to A
ii. Refer to Figure 4. Using the points on the figure, describe the change that would occur if
the price of a substitute for this good becomes more expensive.
A to C
iii. Refer to Figure 4. Using the points on the figure, describe the change that would occur if
the price of this good increases.
B to A
iv. Refer to Figure 4-. Using the points on the figure, describe the change that would occur if
a news report stated that the price of this good was expected to increase next week.
A to C
Question 3 Scenario based Question
Suppose the demand schedule in a market can be represented by the equation QD = 500 - 10P,
where QD is the quantity demanded and P is the price. Also, suppose the supply schedule can
be represented by the equation QS = 200 + 10P, where QS is the quantity supplied.
i. Refer to Scenario 4-1. What is the equilibrium price in this market?
P = 15
ii. Refer to Scenario 4-1. What is the equilibrium quantity in this market?
Q = 350
iii. Refer to Scenario 4-1. Suppose the price is currently equal to 10 in this market. Is there a
shortage or surplus in this market, and how large is the shortage/surplus?
There is a shortage of 100 units.
iv. Refer to Scenario 4-1. Suppose the price is currently equal to 18 in this market. Is there a
shortage or surplus in this market, and how large is the shortage/surplus?
There is a surplus of 60 units.
v. Refer to Scenario 4-1. Suppose the supply curve shifts to QS = 300 + 10P. What is the
new equilibrium price and quantity in this market?
The new equilibrium is P = 10 and Q = 400.
Question 4 Supply and Demand Analysis
i. Given the table below, graph the demand and supply curves for flashlights. Make certain
to label the equilibrium price and equilibrium quantity.
Quantity Demanded Quantity Supplied
Price
Per Month Per Month
$5 6,000 10,000
$4 8,000 8,000
$3 10,000 6,000
$2 12,000 4,000
$1 14,000 2,000
ii. What is the equilibrium price and the equilibrium quantity?
iii. Suppose the price is currently $5. What problem would exist in the market? What would
you expect to happen to price? Show this on your graph.
iv. Suppose the price is currently $2. What problem would exist in the market? What would
you expect to happen to price? Show this on your graph.
ANSWER:
a.
b. The equilibrium price (Pe) is $4 and the equilibrium quantity (Qe) is 8,000.
c. A surplus of 4,000 flashlights would be the problem in the market, and we would expect
the price to fall.
d. A shortage of 8,000 flashlights would be the problem in the market, and we would expect
the price to rise.
