EC100 MST REVISION

Topic 3 Week 3

The table below shows quantity demand and quantity supply of note book at different price
levels.

P D S
Q Q
$0 24 0
1 21 5
2 18 10
3 15 15
4 12 20
5 9 25
6 6 30

a) Draw demand and supply curve. (Clearly label your graph) and state equilibrium price
and quantity? [ 3 m]
b) If price of note book at $2, discuss what will be the consequences of this price level and
how will market forces act to reach equilibrium price. [2 m]

c) State one factor that lead to outward shift (increase) in demand curve. Discuss how the
factor identified would affect the demand. [2 m]

d) Discuss one factor that lead to inward shift (decrease) in Supply curve. [2 m]

Topic 4 Week 4

1. Consider the following pairs of goods. For which of the two goods would you expect the
demand to be more price elastic? Why?
a. water or diamonds
b. insulin or nasal decongestant spray
c. food in general or breakfast cereal
d. gasoline over the course of a week or gasoline over the course of a year
e. Personal computers or IBM personal computers.
 2. Discuss Factors that may affect determines Price elasticity of supply.
3. Using the midpoint method, compute the elasticity of demand between points A and
B. Is demand along this portion of the curve elastic or inelastic? Interpret your
answer with regard to price and quantity demanded. Now compute the elasticity of
demand between points B and C. Is demand along this portion of the curve elastic
or inelastic?
Price
22

20
A
18

16

14
B
12

10

8
C
6

2
Demand
100 200 300 400 500 600 700 800 900 Quantity

4. You own a small-town movie theatre. You currently charge $5 per ticket for everyone who
comes to your movies. Your friend who took an economics course in college tells you that
there may be a way to increase your total revenue. Given the demand curves shown, answer
the following questions.

Price
10
Price
10
9
9
8
8
7
7
6
6
5
5
4
4
3
3
2 Adult Demand 2 Child Demand
1 1

10 20 30 40 50 60 70 80 90 100 Quantity 5 10 15 20 25 30 35 40 45 50 55 60 65 70 Quantity

a. What is your current total revenue for both groups?

b. The elasticity of demand is more elastic in which market?
c. Which market has the more inelastic demand?
d. What is the elasticity of demand between the prices of $5 and $2 in the adult market? Is
this elastic or inelastic?
e. What is the elasticity of demand between $5 and $2 in the children's market? Is this
elastic or inelastic?
f. Given the graphs and what your friend knows about economics, he recommends you
increase the price of adult tickets to $8 each and lower the price of a child's ticket to $3. How
much could you increase total revenue if you take his advice?

Topic 5 Week 5
price
1000

900
S
800

700

600

500

400

300

200
D
100

1000 2000 3000 4000 5000 6000 7000 8000 quantity

Using the graph shown,

analyze the effect a $300 price ceiling would have on the market for ten-speed bicycles. Would
this be a binding price ceiling?
b. Using the graph shown, analyze the effect a $700 price floor would have on this market
for ten-speed bicycles. Would this be a binding price floor?
c. Why would policymakers choose to impose a price ceiling or price floor?
d. Assume market for bicycles is perfectly competitive; government enforces price celling
at price of $300 so that poor families can afford bicycles. Will government able to achieve its
goal of helping poor in this case. Explain.
e.. if government imposes a tax of $100 on sellers of bicycles, using graph above analyze
burden of tax on buyers, sellers, new price, price received by buyers, price received by sellers,
and effect on output of bicycles.
2. What do we mean by incidence of tax?

3. Comment on this statement “if tax is imposed on consumers then tax is paid by buyers
only”.

4. Comment on this statement “if tax is imposed on consumers then more tax burden on
consumer and less on producers.”

5. Who will bear more burden of tax(buyers/sellers) if demand is relatively more inelastic
compared to supply. Justify your answer using supply and demand diagrams.