ECO111 Microeconomics

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STUDENT INFORMATION
Name: NGUYỄN THÙY DƯƠNG Roll number: HS190099
Room No: BE320 Class: IB1905

FOR TEACHER ONLY

MARK MARKED BY Signatu
(NAME AND SIGNATURE) re of
Proctor

Individual Assignment 02
Question 1. (2 points)

1. You can allocate your time for the next four years between studying and working at a car
wash. Each semester you spend studying you can earn 15 credit hours and each semester you
work at the car wash you wash 800 cars. If you have 8 semesters to allocate, label each of the
following on a graph.
a. Your production possibilities curve (0.5)
b. A point that is unattainable (0.5)
c. A point that is efficient (0.5)
d. Plot and label a point on your graph that represents a decision to take a semester off from
both studying and working. (0.5)

ANSWER:
a. Your production possibilities curve

b. A point that is unattainable: POINT B

c. A point that is efficient: POINT A
d. Plot and label a point on your graph that represents a decision to take a semester off from
both studying and working: POINT C

2. Refer to the graph provided to answer the following questions. (2 points)

Price
Supply

3
Demand

0
100 175 220 Quantity demanded

a. What are the equilibrium price and quantity in this market? (0.5)
b. What is the effect of a price ceiling of $3 placed on this market? (0.5)
c. What is the effect of a price ceiling of $7 placed on this market? (0.5)
d. If the price in this market is $7, explain the adjustment process that will bring the
market back to equilibrium. (0.5)
 ANSWER:
a. What are the equilibrium price and quantity in this market? (0.5)
+The equilibrium price is 5
+The equilibrium quantity is 175.
b. What is the effect of a price ceiling of $3 placed on this market? (0.5)
S=100
D=220
=> Lacking of 120 products.
c. What is the effect of a price ceiling of $7 placed on this market? (0.5)
S=220
D=100
=> Surplus of 120 products.
d. If price in this market is $7, explain the adjustment process that will bring the market
back to equilibrium. (0.5)
Supply shift left and demand low up.

3. Graph the effect on equilibrium price and quantity in the market for oranges for each
of the following changes (graph each one separately). (2 points)
a. A chemical routinely sprayed on orange orchards is found to cause cancer.(0.5)
b. The wages of farm workers increase. (0.5)
c. A new orange picking machine is invented. For the same cost, it can pick more
oranges, faster, and with less damage than other machines. (0.5)
d. Consumer income falls. (0.25)
e. The price of tangerines falls. (0.25)

ANSWER:
a. A chemical routinely sprayed on orange orchards is found to cause cancer.(0.5)
Demand low and Supply raise
b. The wages of farm workers increase. (0.5)
Supply raise and Demand low
c. A new orange picking machine is invented. For the same cost, it can pick more
oranges, faster, and with less damage than other machines. (0.5)
Supply raise and Demand low
d. Consumer income falls. (0.25)
Supply raise and Demand low
e. The price of tangerines falls. (0.25)
Supply raise and Demand low

Question 2 (2 points)
1. You operate your own business selling college t-shirts. The demand schedule for
your t-shirts is as follows: P = 25 - 0.5Q.
a. Graph the demand curve for your t-shirts. (0.5)
 b. Calculate the price elasticity of demand when the price equals $10. (0.5)
c. In what range does price elasticity of demand fall at $10 (elastic, unit elastic,
inelastic)? (0.5)
d. If your goal is to maximize total revenue, how should you change price if you are
currently charging $10? (0.5)

ANSWER:
a. Graph the demand curve for your t-shirts. (0.5)
+P=10=>Q=30
+P=15=>Q=20
+P=20=>Q=10

b. Calculate the price elasticity of demand when the price equals $10. (0.5)
E=P/Q x 1/0,5 => e=0,67.
c. In what range does price elasticity of demand fall at $10 (elastic, unit elastic,
inelastic)? (0.5)
Inelastic.
d. If your goal is to maximize total revenue, how should you change the price if you
are currently charging $10? (0.5)
By increasing P to the maximum, and Q decreasing, we will get the maximum
revenue.

2a.Use the information in the graph below to find price elasticity of supply at point A.
(0.25)

Price Supply

4 A
 0 20 30 Quantity Demanded
ANSWER for 2a:

2b. Based on the elasticity of supply in part a, if the price increases by 10%, by how
much will the quantity supplied change? (0.25)
ANSWER for 2b:
If the price increases by 10%, then the supply increases by 20% because elasticity=2.

2c. What will happen to the price elasticity of supply, in each of the following cases
(becomes more inelastic, more elastic, or does not change)? (0.5)
ANSWER for 2c:
i. Inputs become easier to transport
Increase S and decrease D.
ii. new inputs into the production of the good are
found
Increase S and decrease D.
iii. the firm moves from the short-run to the long-run
Increase S and decrease D, because when you sell short-
term, you have to sell low price to attract buyers; while
you sell long-term, you can let higher prices.

Question 3. Which of the following is true for a vertical supply curve? (1point)
a. Price elasticity of supply is perfect elastic
b. Quantity supplied is very responsive to price changes
c. Price elasticity of supply is inelastic
d. Price elasticity of supply is infinite
e. The quantity supplied is negatively related to the price

ANSWER:
Choose D. Price elasticity of supply is infinite