BE-1101 PRINCIPLES OF ECONOMICS: TUTORIAL WEEK 7

1. Evaluate the following statement: "Giffen goods violate the ‘law of demand,’ therefore, the ‘law of
demand’ can't really be considered a ‘law.’"

2. Amin’s income declines, and as result, he buys more Nasi Lemak UBD. Is nasi lemak UBD an inferior or
a normal good? What happens to Amin’s demand curve for Nasi Lemak UBD?

3. Suppose that you read in the paper that the price of gasoline had gone up from $1.90 in April to $2.00
in June, and that gasoline sales had also gone up, from 120 million gallons a day in April to 140 million
gallons a day in June. Does this violate the Law of Demand?

4. This question deals with demand and supply and refers you to the table below.
a. Given the table, graph the demand and supply curves for flashlights. Make certain to label
equilibrium price and equilibrium quantity.

Price Quantity Demanded/Month Quantity Supplied/Month

$5 6,000 10,000
$4 8,000 8,000
$3 10,000 6,000
$2 12,000 4,000
$1 14,000 2,000

b. What is the equilibrium price and equilibrium quantity?

c. Suppose the price is currently at $5. What problem would exist in the economy? What would you
expect to happen to price? Show this on your graph.
d. Suppose the price is currently $2. What problem exists in the economy? What would you expect
to happen to price? Show this on your graph.

5. Consider the market for minivans. For each of the events listed below, identify which of the
determinants of demand or supply are affected. Also indicate whether demand or supply increases or
decreases. Then draw a diagram to show the effect of the price and quantity of minivans:
a. People decide to have more children.
b. A strike by steelworkers raises steel prices.
c. Engineers develop new automated machinery for the production of minivans.
d. The price of sports utility vehicles rises.
e. A stock-market crash lowers people’s wealth.

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