ECO111 Microeconomics

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STUDENT INFORMATION
Name: DƯƠNG HOÀNG TRIỀU Roll number:
Room No: Class: IB1609

FOR TEACHER ONLY

MARK MARKED BY Signature of Proctor
(NAME AND SIGNATURE)

Individual Assignment 02

Question 1. (2 points)

1. You can allocate your time for the next four years between studying and working at a car
wash. Each semester you spend studying you can earn 15 credit hours and each semester you
work at the car wash you wash 800 cars. If you have 8 semesters to allocate, label each of the
following on a graph.
a. Your production possibilities curve (0.5)
b. A point that is unattainable (0.5) Point B
c. A point that is efficient (0.5)Point A
d. Plot and label a point on your graph that represents a decision to take a semester off from
both studying and working. (0.5) Point C
Credit Hourse

120

90 C

75 B

60 A

3200 4000 4800 6400 Car Washes

2. Refer to the graph provided to answer the following questions. (2 points)

Price
Supply

3
Demand

0
100 175 220 Quantity demanded

a. What are the equilibrium price and quantity in this market? (0.5)
The equilibrium price = 5
The equilibrium quantity = 175
b. What is the effect of a price ceiling of $3 placed on this market? (0.5)
S=100
D=220
So lacking of 120 products (shortage)
c. What is the effect of a price ceiling of $7 placed on this market? (0.5)
S=220
D=100
So surplus of 120 products
d. If price in this market is $7, explain the adjustment process that will bring the market
back to equilibrium. (0.5)
If price in this market is $7, there will be a surplus of 120, supply shift left and demand
low up until there is no more surplus, at equilibrium price of $5
3. Graph the effect on equilibrium price and quantity in the market for oranges for each
of the following changes (graph each one separately). (2 points)
S
a. A chemical routinely sprayed on orange orchards is found to cause cancer.(0.5)
Demand low and supply low.

P
D
D
Q

b. The wages of farm workers increase. (0.5)

Supply raise and demand low
 S

P
D
Q

S
S
c. A new orange picking machine is invented. For the same cost, it can pick more
oranges, faster, and with less damage than other machines. (0.5)
Supply raise and demand
raise
P

DD
Q
 S
d. Consumer income falls. (0.25)
Supply low and demand raise.

e. The price of tangerines falls. (0.25)

 S

Question 2 (2 points)
1. You operate your own business selling college t-shirts. The demand schedule for
your t-shirts is as follows: P = 25 - 0.5Q.
a. Graph the demand curve for your t-shirts. (0.5)
P=10 => Q=30
P=15 => Q=20
P=20 => Q=10

20

15

10

10 20 30

Q
 b. Calculate the price elasticity of demand when price equals $10. (0.5)
E = P/Q x 1/slope = P/Q x 1/0.5 = 10/30 x 1/0.5 => e=0.67
c. In what range does price elasticity of demand fall at $10 (elastic, unit elastic,
inelastic)? (0.5)
Inelastic
c. If your goal is to maximize total revenue, how should you change price if you
are currently charging $10? (0.5)
Increasing P to the maximum, Q decreasing, we will get the maximum revenue

2a.Use the information in the graph below to find price elasticity of supply at point A.
(0.25)
4 = x + 20y
7 = x + 30y
 x = -2
y = 0,3
 e = 4/20 x 1/0,3 = 0,67

Price (x) Supply

4 A

0 20 30 Quantity Demanded (y)

2b. Based on the elasticity of supply in part a, if price increases by 10%, by how much
will quantity supplied change? (0.25)
If the price increases by 10% then the supply increases by 20% because
elasticity = 2
2c. What will happen to the price elasticity of supply, in each of the following cases
(becomes more inelastic, more elastic, or does not change)? (0.5)

More elastic in each case

i. inputs become easier to transport
Increase S and decrease D
ii. new inputs into production of the good are found
Increase S and decrease D
 iii. the firm moves from the short-run to the long-run
Increase S and decrease D.
Because when you sell short-term you have to
sell low price to attract buyers, while you sell
long-term you can let higher prices.

Question 3. Which of the following is true for a vertical supply curve? (1point)
a. Price elasticity of supply is perfect elastic
b. Quantity supplied is very responsive to price changes
c. Price elasticity of supply is inelastic
d. Price elasticity of supply is infinite
e. Quantity supplied is negatively related to price