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Exercise No. 3, 4, 5
Exercise No. 3, 4, 5
Exercise No. 3, 4, 5
4
DEMAND ELASTICITY
a. Solve for the elasticity of demand at points A and E, E and F, F and J. Indicate whether they are
elastic or inelastic
b. Plot the demand curve with its corresponding points
c. Solve for the total revenue
d. Considering the elasticity of the market demand for coffee, what will happen to total revenue if
there will be an increase in the price of coffee? Justify your answer.
EXERCISE NO. 3
SUPPLY
1. Given the following scenarios describe and illustrate what will happen to the supply of the
following commodities. Indicate whether there will be a RIGHT SHIFT, LEFT SHIFT or NO SHOFT
at all.
a) Just recently the price of sugar has decreased, as a major input for baked products, show
how this will affect the supply of bread.
b) Suppose the IRRI just developed a new high-yielding variety of rice giving 200 cavans foe
very hectare of land. Show the effect on the supply of rice in the market
c) There was a surge in the price of cotton. How will this affect clothing companies?
d) The use of machines in producing processed foods like sardines.
e) A super typhoon destroyed the corn crops of Isabela, a major source of corn in the country.
2. Using the hypothetical price-quantity supply relationship for coffee answer the following
questions:
a) Solve for the market supply curve (assumption: there are only three sellers in the market)
b) Plot the supply curve of each seller and the market supply curve where the individual
supply curves were drawn
1.
a. Just recently the price of sugar has decreased, as a major input for baked products, show how this will
affect the supply of bread.
Change in Supply
b. Suppose the IRRI just developed a new high-yielding variety of rice giving 200 cavans for every hectare
of land. Show the effect on the supply of rice in the market.
Change in Supply
c. There was a surge in the price of cotton. How will this affect clothing companies?
No Shift
Change in Supply
e. A super typhoon destroyed the corn crops of Isabela, a major source of corn in the country.
Change in Supply
Q
2.
a.
b.
12
10
0
0 10 20 30 40 50 60 70
Supply Curve Fernando
14
12
10
0
0 10 20 30 40 50 60 70
12
10
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0 10 20 30 40 50 60 70
Market Supply Curve
14
12
10
0
0 10 20 30 40 50 60 70
EXERCISE NO. 4
MARKET EQUILIBRIUM
1. Using the data from exercise 2 and 5, make a tabular and graphical presentation of the market
demand and supply. Determine the equilibrium price and quantity, state of market condition
and the pressure on prices
2. For each of the situation described below, answer the following questions regarding the
mentioned commodity:
a) What curve is affected?
b) Will it cause a shift or movement?
c) What is the direction of the change?
d) What will be the effect on price?
e) What will be the effect on quantity?
f) Illustrate the situation graphically?
1. COCA COLA. Because of the increasing advertising costs, Pepsi decides to raise its price
2. RICE. A drought hits Central Luzon or the whole summer
3. UMBRELLAS. Raincoats become the fad, causing umbrellas to be unfashioned
4. CLOTHES. President Arroyo abolishes income taxes
5. CARS. There is a decrease in the price of steel
3. You are given the following market model:
60
50
40
30
20
10
0
0 10 20 30 40 50 60 70
COCA-COLA
P a. Demand curve
b. Movement
P2 c. to the Left
P1 d. Increase in price
e. decrease in quantity
Q2 Q1 Q
RICE
P S2 S1 a. Supply curve
b. Shift
c. to the left
d. Increase
e. Decrease
Q
UMBRELLAS
P a. Demand curve
b. Shift
c. to the left
d. decrease
Q1 e. decrease
Q2
Q
CLOTHES
P a. Demand curve
b. Shift
c. to the right
d. increase
Q2 e. increase
Q1
Q
CARS
P S1 a. Supply curve
S2 b. Shift
c. to the right
d. decrease
e. increase
Q
3. Qd = 2,500 200P
Qs = 500 + 300P
Qd = Qs
2,000 = 500P
P* = 4
Qd = 2,500 200P
Qd = 2,500 800
Q* = 1700
b. at P = 2.00
At P = 4.00
Qd = 1,700 Qs = 1,700
4.
5.