BME1014

INTRODUCTORY MICROECONOMICS
TUTORIAL 2

Part A
1. For each of the following pairs of products, state which are complements, which are
substitutes, and which are unrelated.
(a) Laptops and cell-phones. Both, complements and substitutes
(b) Books and e-readers. Substitutes
(c) Bread and butter. Complements
(d) Cars and washing machine. Unrelated

2. State whether each of the following events will result in a movement along the
demand curve for McDonald’s Big Mac hamburgers or whether it will cause the curve
to shift. If the demand curve shifts, indicate whether it will shift to the left or to the
right and draw a graph to illustrate the shift.
(a) The price of Burger King’s Whopper hamburger declines.
Demand curve for Big Mac shifts to the left
(b) McDonald’s offers a scheme of two burgers for the price of one between 12pm to
3pm.
Movement along the demand curve for Big Mac
(c) A national report on the adverse effects of fast food on obesity is released.
(consumer preference)
Demand curve for Big Mac shifts to the left
(d) The Malaysia economy enters a period of rapid growth in incomes.
Demand curve for Big Mac shifts to the right

3. Briefly explain whether each of the following statements describes a change in supply
or a change in quantity supplied:
(a) During a recent heat wave, more ice-creams were produced. Weather -> consumer
preference
This is an increase in quantity supplied as consumer preferences had led to
increased demand for ice creams.
(b) The success of the Apple iPad leads more firms to begin producing tablet
computers.
This is an increase in supply as more firms enter the market and the supple
curve shifts out.
(c) An expected global shortage in oil leads to a rise in the production of solar energy
panels.
This is an increase in quantity supplied as demand for the good has increased
due to higher prices of the substitutes.
To some extent, the supply curve could be also shift out if firms forecast an
extended oil shortage in the future

1
Part B

4. During 2009, the demand for LCD televisions appeared to be falling. At the same
time, some industry observers expected that several smaller television manufacturers
might exit the market.
Use a demand and supply graph to analyse the effects of these factors on the
equilibrium price and quantity of LCD televisions. Clearly show on your graph the
old quantity equilibrium price and quantity. Can you tell for certain whether the new
equilibrium price will be higher or lower than the old equilibrium price. Briefly
explain.

5. Years ago, an apple producer argued that the United States should enact a tariff, or a
tariff, or a tax, on imports of bananas. His reasoning was that “the enormous imports
of cheap bananas into the United States tend to curtails the domestic consumption of
fresh fruits produced in the United States.”
(a) Was the apple producer assuming that apples and bananas are substitutes or
complements? Briefly explain.
The apple producer was assuming that apples and banana are substitutes

2
(b) If a tariff on bananas acts as an increase in the cost of supplying bananas in the
United States, use two demand and supply graphs to show the effects of the apple
producer;s proposal. (i) One graph should show the effect on the banana market in
the United States, and (ii) the other graph should show the effect on the apple
market in the United States. Label the change in equilibrium price and quantity in
each market and any shifts in the demand and supply curves.

3
Extra question(s)

6. According to an article in the Wall Street Journal about the effect of increases in the
demand for corn: “Farmers are likely to cut back on some crops, such as soybeans and
rice, to make room for the additional corn.” Use a demand and supply graph to
analyse the effect on the equilibrium price of soybeans resulting from the increase in
the demand for corn.

7. A student writes the following: “Increased production leads to a lower price, which in
turn increases demand.” Do you agree with his reasoning? Briefly explain.

8. Briefly explain whether you agree with the following statement: “When there is a
shortage of a good, consumers eventually give up trying to buy it, so the demand for
the good declines, and the price falls until the market is finally in its equilibrium.”