TUTORIAL 2 (MARKET EQUILIBRIUM)

STRUCTURED QUESTIONS

QUESTION 1

Explain, using appropriate diagrams, the effects on the market for national cars in each of
the following cases:

i) an increase in consumers' income (DETERMINANT OF DEMAND)

(2.5 marks)

Price of national car

S

P1 E1
P0 E0

D1
D0
Quantity of national car
Q0 Q1

ii) an increase in the price of petrol (price of complimentary good) (DETERMINANT OF

DEMAND AND SUPPLY)

(2.5 marks)

Price of national car

S0
S1

P0 E0

P1 E1 D0
D1
Quantity of national car
Q1 Q0
iii) an increase in the cost of inputs used to make cars. (DETERMINANT OF SUPPLY)
(2.5 marks)

Price of national car S1

S0

P1 E1
P0 E0

D0
Quantity of national car
Q1 Q0

iv) an increase in the subsidy given to car manufacturers. (DETERMINANT OF

SUPPLY)

(2.5 marks)

Price of national car S0

S1

P0 E0
P1 E1

D0
Quantity of national car
Q0 Q1
QUESTION 2

Using appropriate diagrams, explain the effects of each of the following cases on the
equilibrium price and quantity.

i) A decline in the number of buyers in the textiles industry. (DETERMINANT OF DEMAND)

(4 marks)

Price of textile (0.5m)

S

(0.5m) P0 E
(0.5m) P1 E1

D0
D1 (1m)
Quantity of textile(0.5m)
Q1 Q0

ii) The price of tea increases, what effect will be on the demand for coffee?.
(DETERMINANT OF DEMAND)
(4 marks)

Price of coffee
S

P1 E1
P0 E0

D1
D0
Quantity of coffee
Q0 Q1
iii) Consumer expects the price of car will be lower next month. (DETERMINANT OF
DEMAND)
(4 marks)

Price of car
S

P0 E
P1 E1

D0
D1
Quantity of car
Q1 Q0
QUESTION 3

The following table shows the demand and supply schedules for good X.

Price of Good X Quantity demanded Quantity supplied

(RM/kg) (kg per week) (kg per week)
70 20 140
60 60 120
50 100 100
40 140 80
30 180 60
20 220 40
10 260 30

a) By using graph paper, draw the demand and supply curves for good X. (3 marks)

Please refer Appendix A

b) What are the equilibrium price and quantity for good X? Label the equilibrium point as
“E”. (2 marks)

Price Equilibrium= RM 50
Quantity Equilibrium= 100 kg

c) Is there a surplus or shortage at the price of RM40.00 per kg and how much is it?
(2 marks)
Shortage
=Qd – Qs
=140 – 80
=60 kg of Good X

d) Suppose supply increases by 60 kg per week at each price level due to an

improvement in technology. Show the change in supply on the same diagram and
determine the new equilibrium price and quantity for good X. (3 marks)

Please refer Appendix B

Price Equilibrium= RM 40
Quantity Equilibrium= 140 kg
QUESTION 4

The following table shows the individual demand and suply schedules of oranges in a
market.

Price Quantity demanded (kg) Quantity supplied (kg)

(RM/kg) Zetty Shima Aiman Shop 1 Shop 2
2 25 15 25 12 3
3 23 12 20 20 10
4 18 10 17 25 20
5 12 8 15 30 30
6 2 3 5 35 40

a) Based on the information provided, plot the market demand and supply curves for
oranges.

Please refer Appendix C

b) Determine the market equilibrium price and quantity for oranges.

Price Equilibrium= RM4/ kg

Quantity Equilibrium= 45kg

c) Due to health report saying that eating oranges can improve a person’s skin texture
and immune system, the demand for oranges increases by 5 kg at every price levels.
Draw the new demand curve in diagram 1(a) to show the changes. State the new
equilibrium price and quantity.

Please refer Appendix D

New Price Equilibrium= RM4.25/ kg

New Quantity Equilibrium= 47.5 kg

d) Suppose the government is imposing a price control of RM5,

i) What is legal price called?

Minimum Price/ Floor Price

ii) Determine wether there will be a surplus or shortage in the market.

Surplus

iii) Calculate the amount of surplus or shortage

= Qs- QD
= 60 – 35
= Surplus by 15 kg of oranges
 APPENDIX A

Price of Good X(RM)

S0

70

60

50 E

40

30
Shortage

20

10
D0 300

0 Quantity (kg)
50 100 150 200 250
 APPENDIX B

Price of Good X(RM)

S0 S1
70

60

50 E

40 E1

30

20

10
D0 300

0 Quantity (kg)
50 100 150 200 250
 APPENDIX C

Price of oranges(RM)

S0
6

4 E0

2
D0

0 Quantity (kg)
10 20 30 40 50 60 70 80
 APPENDIX D

Price of oranges(RM)

S0

6
Surplus

2
D1
D0

0 Quantity (kg)
10 20 30 40 50 60 70 80