Quiz Microeconomics BECO201 Date 30/10/2017

Name: ID:

I) When the price of pizza increase by 2% the quantity of pizza decrease by 5%.
Calculate the price elasticity of Pizza. Give an interpretation of your answer and
precise the type of elasticity (3 points)
%∆𝑸
PED= %∆𝑷=  -­‐5%2%=  -­‐  2,5  

Interpretation: When  the  price  of  pizza  increase  by  1%  the  quantity  of  Pizza  
decrease  by  2,5%  

Type of elasticity: Elastic

II) The following functions represent the demand and supply for chairs in an
industrial company: (4 points)
Qd = 50 – P
Qs = 10 + P
1. Determine the price and the quantity at the equilibrium (1 point)
At equilibrium Qd=Qs
50-P=10+P so 40=2P
P=20 and Q=30
2. Calculate the price elasticity of demand at P = 25. Explain its meaning (1 point)
When P=25 Qd=50-25=25

𝒅𝑸 𝑷
PED= * = -1*1/1=-1
𝒅𝑷 (𝑸

At p=25 if prices increase by 1% quantity demanded decrease by 1%

3. Without doing the calculus, at P =40 do you think that price elasticity of demand will
be higher or lower than the one at P=25? Why? (1 point) verify your answer by doing
the calculus (1point)
When the price increase the price elasticity of demand increase. So we expect that
elasticity at p=40> elasticity at P=25

At p=40 Q=10
𝒅𝑸 𝑷
PED= * =-1*40/10=-4
𝒅𝑷 (𝑸

/PED40/ > /PED25/

4>1

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II) 1,000 gallons of gasoline were purchased each day at a price of $3 per gallon;
an increase in price to $4.5 per gallon reduced the quantity demanded to 600
gallons per day (5 points)
1. Compute the price elasticity of demand between these two points. (2
points)

%∆𝑸
PED=  %∆𝑷
%∆𝑸 = (600-1000)/(600+1000)/2= -0,5
%∆𝑷 = 4.5-3/(4.5+3)/2= 0,4
PED= -1,25

(if you don’t use the midpoint formula you will get:
%∆𝑸 = (600-1000)/1000= -0,4
%∆𝑷 = 4.5-3/3= 0,5
PED= -0,8

2. What is the type of elasticity computed in the previous question? Would

you expect total revenues to rise or fall? Explain. (1.5 points)

/PED/=/-1,25/=1,25 the demand for gasoline is elastic (0,5 points)

Since the demand is elastic so if prices increase by 1% the quantity decreases

by more than 1% accordingly quantity is king.
Since quantity in this case decrease so we expect the total revenues to decrease

(If you do not use the midpoint formula you will get that the demand is
inelastic and accordingly is P increase by 1% quantity decrease by less than
1% so price is king. Since P go from 3 to 4,5 so increase we expect total
income to increase)

3. Compute total revenue at the two gasoline prices. Do these totals confirm
your answer in (b) (1.5 points)
Revenues 1= 1000*3= 3000$
After price increase
Revenues 2= 600*4,5= 2700$

Since revenues 2<Revenues 1 then yes these totals confirm the answer in part b

(if you don’t use the midpoint formula you will have different answers and part b do
not confirm part 3)

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III) Multiple choice questions (2,5 points)
1) An increase in the price of croissant
(a) Will shift the demand of croissant curve right
(b) Will shift the demand of croissant curve left
(c) Will shift the supply of croissant curve right
(d) Will shift the supply of croissant curve left
(e) No change in the demand and supply curve of croissant

2) An increase in the price of mankouch

(a) Will shift the demand of croissant curve right
(b) Will shift the demand of croissant curve left
(c) Will shift the supply of croissant curve right
(d) Will shift the supply of croissant curve left
(e) No change in the demand and supply curve of croissant

3) An increase in income
(a) Will shift the demand of croissant curve right
(b) Will shift the demand of croissant curve left
(c) Will shift the supply of croissant curve right
(d) Will shift the supply of croissant curve left
(e) No change in the demand and supply curve of croissant

4) An increase in the price of butter (an input for making croissant)

(a) Will shift the demand of croissant curve right
(b) Will shift the demand of croissant curve left
(c) Will shift the supply of croissant curve right
(d) Will shift the supply of croissant curve left
(e) No change in the demand and supply curve of croissant

5) An increase in the price of orange juice

(a) Will shift the demand of croissant curve right
(b) Will shift the demand of croissant curve left
(c) Will shift the supply of croissant curve right
(d) Will shift the supply of croissant curve left
(e) No change in the demand and supply curve of croissant
(you can also consider b as a right answer if you think orange juice and croissant are
complementary goods)

IV) Fill in the blank (3,5 points)

1) Croissant and Mankouch are …Substitute…………………….. goods
2) used clothes are …Inferior……………goods
3) an increase in income will shift the ……Demand……….. curve for iphone to the
……Right……..
4) if quantity demanded is higher than quantity supplied we will have a
………Shortage………
5) if quantity supplied higher than quantity demanded we will have
……Surplus……….
6) if quantity demanded equal quantity supplied we will
have……Equilibrium………….

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V) Assume that each of the markets below is initially in equilibrium. Then for each
market below, suppose that the indicated event occurs. Illustrate the effect of each
event in a diagram and indicate the effects on the equilibrium price and quantity.
(Provide small explanation for each event) (6 points)
a) In the market of bicycles. The price of cars increase (2 points)
Cars and bicycles are substitute goods, if Price of cars increase, demand curve for
bicycles increase. Demand curve shift right. Price of bicycles and quantity of bicycles
increase at the new equilibrium (1 point) + (1point for the graph)

b) in the market of cars. Income increase (2 points)

The  demand  increases,  demand  curve  shift  to  the  right.  .(0,5  point)  The  quantity  
demanded  at  equilibrium  increase.  And  the  price  at  equilibrium  increases.  (P!  
Q!)  (0,5  point)  + (1point for the graph)

c) In the market of books. Price of lemon increase. (2 points)

Books and Lemon arenon related goods so we will have no change in the market of
books. (1 point)
Graph (1 point)

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VI) Refer to the information provided in Table below to answer the
questions that follow. (6 points)
Quantity Demanded (Pizzas per Quantity Supplied (Pizzas
Price per Pizza
Month) per Month)

$3 1,200 600

$6 1,000 700

$9 800 800

$12 600 900

$15 400 1,000

1) What is the equilibrium price and quantity? (1 point)

Price at equilibrium=9$ and quantity at equilibrium=800

2) At equilibrium how much revenue do suppliers of pizza make?(1 point)

9*800=7200

3) If supplier of pizza set the price at 15$. How many pizza will be supplied? How
many pizzas will be demanded? What do we call this situation? In this case how much
money do suppliers of pizza get? (2 points)
Number of pizzas supplied= 1000
Number of pizzas demanded= 400
Name of situation: Surplus
Revenue from selling Pizzas= 15*400=6000

4) if the government intervene in the market and set a maximu price for pizza at 6$.
How many pizza will be supplied? How many pizza will be demanded? (2 points)
Number of pizzas supplied= 700
Number of pizzas demanded= 1000
Name of situation: Shortage
Revenue from selling Pizzas= 700*6 =4200

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