6

ECO111 Microeconomics
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STUDENT INFORMATION
Name: NGUYỄN THỊ THANH HIỀN Roll number: HS176157
Room No: 320 Class: IB1806

FOR TEACHER ONLY

MARK Signature of Proctor
MARKED BY
(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)
c. A point that is efficient (0.5)
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)
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)
b. What is the effect of a price ceiling of $3 placed on this market? (0.5)
c. What is the effect of a price ceiling of $7 placed on this market? (0.5)
d. If price in this market is $7, explain the adjustment process that will bring the market
back to equilibrium. (0.5)

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)
a. A chemical routinely sprayed on orange orchards is found to cause cancer.(0.5)
b. The wages of farm workers increase. (0.5)
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)
d. Consumer income falls. (0.25)
e. The price of tangerines falls. (0.25)

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)
b. Calculate the price elasticity of demand when price equals $10. (0.5)
c. In what range does price elasticity of demand fall at $10 (elastic, unit elastic,
inelastic)? (0.5)
 d. If your goal is to maximize total revenue, how should you change price if you are
currently charging $10? (0.5)

2a.Use the information in the graph below to find price elasticity of supply at point A.
(0.25)

Price Supply

4 A

0 20 30 Quantity Demanded

2b. Based on the elasticity of supply in part a, if price increases by 10%, by how much
will quantity supplied change? (0.25)

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)
i. inputs become easier to transport
ii. new inputs into production of the good are found
iii. the firm moves from the short-run to the long-run

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
Answer:

QN = 1.1 :

Picture ( M)

3200 4000 4800 6400

a) Your production possibilities curve

- Picture M

b) A point that is unattainable

- Point B

c) A point that is efficient

- 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

- Point C

QN = 1.2 :

a) What are the equilibrium price and quantity in this market?

- Equilibrium price in this market = 5

Equilibrium quantity in this market = 175

b)What is the effect of a price ceiling of $3 placed on this market?

S = 100

D= 220

D > S => Lacking of 120 products

c) What is the effect of a price ceiling of $7 placed on this market?

S = 220

D = 100

S > D => Surplus of 120 products

d) If price in this market is $7, explain the adjustment process that will bring the market back

to equilibrium.

The price in the market is 7 dollars , the market is over-demanding and under-

supplying, so to adjust the balance in the market, it is necessary to Supply shift

left and demand low up.

QN= 1.3:
Graph the effect on equilibrium price and quantity in the market for oranges for each

of the following changes (graph each one separately).

a. A chemical routinely sprayed on orange orchards is found to cause cancer.

- The demand for oranges falls => The D curve shifts left and supply raise.

Price S

P2
P1

D2 D1 Quality
Q2 Q1

b. The wages of farm workers increase.

- S curve shifts left. The shift causes price to increase and quantity to fall

Price S2 S1

P2
P1

D Quality
Q2 Q1
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.

- The firms will supply more oranges => The S curve shifts right.The
shift causes price to fall and quantity to increase

Price S1

P1 S2
P2

D Quality
Q1 Q2

d. Consumer income falls.

- Supply raise and demand low.

Price S

P2
P1

D2 D1 Quality
Q1 Q2
e. The price of tangerines falls.

- Supply raise and demand low.

Price S

P1
P2

D2 D1
Quality

Q2 Q1

QN= 2.1:

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.

Price

25

20

15

10

Quality

10 20 30 50
 P = 0 => Q = 50

P = 10 => Q = 30

P = 15 => Q = 20

P= 20 => Q = 10

P = 25 => Q = 0

b. Calculate the price elasticity of demand when price equals $10

% change in P =

c. In what range does price elasticity of demand fall at $10 (elastic, unit elastic,
inelastic)?
E = 0.67 < 1 => Inelastic
d.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

QN = 2.2a:

Use the information in the graph below to find price elasticity of supply at point A

Price Supply

4 A

20 30 Quantity Demanded
 QN= 2.2b:

Based on the elasticity of supply in part a, if price increases by 10%, by how much will

quantity supplied change?

If the price increases by 10% then the supply increases by 20% because

elasticity = 2

QN= 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)?

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.

QN= 3:Which of the following is true for a vertical supply curve?

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

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