PRINCIPLES OF MICROECONOMICS INSTRUCTOR: NGUYEN VIET HOA (0378418749)

CHAPTER 2: SUPPLY, DEMAND AND GOVERNMENT POLICIES

PART 1: ANSWER TRUE OR FALSE WITH SHORT EXPLANATION
1. The law of demand states that an increase in the price of a good decreases the demand for
that good and results in a leftward shift in demand curve.
2. The market demand curve is steeper than the individual demand curves.
3. The market supply curve is flatter than the individual supply curves.
4. Engel curve reflects the relationship between price and quantity demanded of a good.
5. The fact that a good is a normal good or an inferior good depends on the goods’ quality.
6. Suppose the demand function for good X is QDx = g.PX + h.PY + k (g,h,k are constant). If
g.h<0 then X and Y are complementary goods.
7. Suppose the demand function for good X is QDx = g.PX + h.PY + k (g,h,k are constant). If
g.h>0 then X and Y are substitutes.
8. A downward sloping demand curve and an upward sloping supply curve may not intersect
each other.
9. A decrease in price of beef will lead to a rightward shift in the demand curve of pork.
10. A rise in price of gasoline will lead to a rightward shift in the demand curve of motorbike.
11. A decrease in price of apple will lead to a rightward shift in the supply curve of apple.
12. When income increases, the equilibrium price will definitely increase.
13. When income decreases, the equilibrium quantity always increases.
14. Equilibrium price will change only when supply and demand curves shift simultaneously.
15. If an increase in the price of good A leads to a decrease in the price of B then A and B are
substitutes.
16. If X and Y are complementary goods, an increase in the price of X will lead to an increase
in the price of Y.
17. If apples and oranges are substitutes, an increase in the price of apples will lead to a decrease
in the price of oranges.
18. The rescue of blue dragon on February 2020 led to a decline in equilibrium price and an
increase in the equilibrium quantity of blue dragon.
19. Due to an information that lipsticks contain carcinogens, equlibrium price and quantity of
lipsticks decrease.
20. The growing concern about the quality of foods and vegetables which have unknown origin
lead to a rise in the price of foods and vegetables with clear origin.
21. The fact that government imposes tax on the sellers of unhealthy foods lead to a decline in
both the price and quantity of unhealthy foods.
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PRINCIPLES OF MICROECONOMICS INSTRUCTOR: NGUYEN VIET HOA (0378418749)

22. The fact that government subsidizes for the producers of healthy food lead to a rise in the
price of healthy food and a decline in the quantity of healthy food.
23. If pencils and paper are complements, an increase in the price of pencils will result in an
increase in the equilibrium price and quantity in the market for paper.
24. If Coke and Pepsi are substitutes, an increase in the price of Coke will result in an increase
in the equilibrium price and quantity in the market for Pepsi.
25. An advance in the technology employed to manufacture HP laptops will result in a decrease
in the equilibrium price and an increase in the equilibrium quantity in the market for HP laptops.
26. If there is an increase in supply accompanied by a decrease in demand for coffee, then there
will be a decrease in both the equilibrium price and quantity in the market for coffee.
27. In the market for good A, if price of input increases and price of complementary good
decreases then the equilibrium price of A will increase.
28. Wages for iPhone workers increases and Samsung Galaxy’s price increases as well. This
makes iPhone’s quantity decreases and effect on iPhone’s price is ambiguous (assume that
iPhone and Samsung Galaxy are substitutes).
29. In the market for coffee, if wages for coffee picking workers decreases and price of tea
declines then the equilibrium quantity of coffee will increase.
30. If both consumer and producer expect that the price of good X will fall in the future then
the equilibrium quantity of good X will increase.
31. The simultaneous shift in supply and demand to the right will result in an increase in the
equilibrium price.
32. When supply curve shifts leftward and demand curve shifts rightward at the same time,
equilibrium quantity will definitely increase.
33. A weaker demand coupled with a stronger supply does not necessarily result in lower
quantity.
34. When the price of a good is below the equilibrium price, it causes a surplus.
35. When the price of a good is above the equilibrium price, it causes a shortage.
36. Surplus creates pressure to push up the market price, while shortage creates pressure to push
down the market price.
37. Price ceiling would always cause shortage in the market.
38. The fact that government imposes a price floor on the market for good X will cause a surplus
in this market.
39. Government imposes a price ceiling with the aim of protecting the domestic producers.
40. By dint of imposing price floor, government can protect the consumers.
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PRINCIPLES OF MICROECONOMICS INSTRUCTOR: NGUYEN VIET HOA (0378418749)

PART 2: DISCUSSION
1. Thanks to the shuts in and natural declines of non-OPEC++, demand for OPEC++ have been
recovered this month. At the same time, OPEC++ have decided to reduce their quantity. Discuss
the impact of these events on the price and quantity of OPEC ++ during this month in
comparison with last month.
2. Due to the impact of COVID-19 pandemic on airline industry, the proportion of foreign
passengers decreased by 30-40% in April. In addition, the oil price also decreased by 8-10%
per month during this period. Discuss the impact of these events on the price and quantity of
Vietnam Airlines at that time as well as Vietnam Airlines’s decision in this case.
3. In 2013, Lexus launched a new model of cars, but there was no new model produced until
2020. There is a perception that the slowdown of Lexus’s new products has made it lagging
behind German carmakers such as Audi or BMW. Discuss the price and quantity of Lexus and
other German car models in the year 2013 and 2020.
4. Garment production has been mostly affected by the global COVID-19 pandemic so far,
with exports decrease by about 9% this year. Industry insiders have said that around 20% of
garment makers’ orders have been cancelled. By contrast, Vietnam’s mobile phone production
and exports are still up marginally this year. Discuss the impact of these events on export price
and quantity.
5. According to FAO (Food and Agriculture Organization of the United Nations), the quantity
produced of rice in the world market is estimated at 496 million tons, down about 0.6%
compared to 2019. Consumption of rice in the world market is projected to reach 490 million
tons in 2020, up around 0.9% against 2019. Discuss the the impact of these events on the price
and quantity of rice in the world market in the year 2020.
6. Due to the outbreak of COVID-19 pandemic at the beginning of 2020, there is a sharp growth
in the number of people who rushed to buy face masks in order to protect their health. At the
same time, the number of pharmacies selling face masks also rises dramatically. Discuss the
the impact of these events on the price and quantity of face masks during this period.
7. Before the outbreak of COVID-19 pandemic, the Prime Minister of Vietnam decided to raise
the minimum wage for workers. However, when COVID-19 started to spread into Vietnam,
this policy had been postponed in order to save money for urgent cases. Discuss the impact of
these events on the price and quantity of food in Vietnam’s market during these 2 periods.

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