Department of Economics

PEPF 401: SS2019

Tutorial 1
Dr. Hebatallah Ghoneim
Sheet 1: Fundamental Economic Concepts
Problem 1
Assume in the market for oranges there are only two consumers (Omar and Dina) and two
producers (Orangiko and Oranigina).
The demand and Supply schedules of the two producers and consumers are as follows:

Price Omar Dina Total Price Orangiko Orangina Total

Demand Supply

10 5 7 10 0 1
20 4 6 20 1 2
30 2 5 30 2 2
40 2 4 40 3 3
50 1 1 50 4 5
60 0 0 60 5 7

a. Calculate the total demand and total supply in this market.

b. Draw the market demand curve and the market supply curve in a fully labeled diagram.
c. Suppose that Orangiko has imported a new machine that decreases cost. Illustrate graphically
how this affects orange market equilibrium.
d. Suppose it has been a bad season with no rain that contributes in low production Illustrate
graphically how this affects orange market equilibrium.
e. Suppose that one of the two consumers discovered that he is allergic from orange. Illustrate
graphically how this affects orange market equilibrium.
f. Suppose that price of apple increased Illustrate graphically how this affects orange market
equilibrium.
Problem 2

GOOD X
Q 0.5 1 2 3 4 5 6
U(1/2,1/2)= U(1,1/2)= U(2,1/2)= U(3,1/2)= U(4,1/2)= U(5,1/2)= U(6,1/2)=
0.5
0.25 0.50 1 1.50 2 2.50 3
U(1/2,1)= U(1,1)= U(2,1)= U(3,1)= U(4,1)= U(5,1)= U(6,1)=
1 0.50 1 2 3 4 5 6
U(1/2,2)= U(1,2)= U(2,2)= U(3,2)= U(4,2)= U(5,2)= U(6,2)=
2 1 2 4 6 8 10 12
U(1/2,3)= U(1,3)= U(2,3)= U(3,3)= U(4,3)= U(5,3)= U(6,3)=
Good Y

3 1.50 3 6 9 12 15 18
U(1/2,4)= U(1,4)= U(2,4)= U(3,4)= U(4,4)= U(5,4)= U(6,4)=
4 2 4 8 12 16 20 24
U(1/2,5)= U(1,5)= U(2,5)= U(3,5)= U(4,5)= U(5,5)= U(6,5)=
5 2.50 5 10 15 20 25 30
U(1/2,6)= U(1,6)= U(2,6)= U(3,6)= U(4,6)= U(5,6)= U(6,6)=
6 3 6 12 18 24 30 36

1- Consider the utility schedule below and roughly draw the indifference map at utility level=
2, 6, 12 & 20.
2- Consider the above table, at consumption bundle (2,3), what is the opportunity cost of one
additional unit of x in terms of y?
3- If the consumer is consuming 4 units of x and 3 units of y, how much is his utility? If he
wants to expand his consumption of x to 6 units but be on the same IC, what is the slope
of IC?
Problem 3
Nada has a budget of 1000 LE to spend on food per month. She likes to eat pizza (x) and
pasta (y)
1- Given that the price of a pizza is 20 LE and the price of a pasta dish is 50 LE, formulate
the budget equation and draw it accurately.
2- If Nada wants to eat 10 dishes of pasta, how many pizzas can she afford to buy?
3- Assuming that the optimum consumption quantities are 10 pasta dishes and 16 pizzas,
demonstrate these quantities using the indifference curve approach.
4- Now assume the price of pizzas increases to 40 LE. .Nada now decides to eat 8 Pizza.
Demonstrate the effect of the price increase on the budget line and the optimal
consumption level. Insert in your graph the price consumption curve.
5- Derive the demand curve for pizza.
6- Back to the initial budget line. Assume there is an increase in income to 1200. Nada now
consumes 15 dishes of pizza. Draw a full label diagram to express the changes in the
optimal consumption bundle. Insert in your graph the income consumption curve.