CHAPTER 03: DEMAND AND SUPPLY

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1 CHAPTER 03: DEMAND AND SUPPLY Calculate the market equilibrium (Exercises 1-5) Exercise 1 Qd = 50-2p Qs = -20+5p Exercise 2 Qd = 45-3p Qs = -32+4p Exercise 3 Qd = 24-2p Qs = -5+7p Exercise 4 Qd = 51-3p Qs = -10+6p Exercise 5 Qd = 30-2p Qs = -6+5p Exercise 6 In 1985, USA supply and demand of wheat which represents the following equation: Qd = 2, p Qs = 1, p Where: Price ($), Quantity (Tones) a) Calculate the market equilibrium (Pe & Qe) b) Calculate new market equilibrium when quantity demanded of wheat increase 200 tones. 1 Dewey International University: Principle of Economics (Problem Solving) by Dr. Sou Veasna

2 Exercise 7 We suppose that the equation of demand and supply shown: Qd = 65,000 10,000p Qs = -35, ,000p Price ($) Quantity Demanded (Qd) Quantity Supplied (Qs) Surplus/Shortage Exercise 8 In 1981, USA showed the supply curve and demand curve of wheat production which represented the following function of demand and supply equation. Qs = 1, p Qd = 3, p a) Draw the demand curve and supply curve when P=$2 & P=$4 b) Calculate the market equilibrium c) Refer to question (a) and (b), find the market surplus and shortage 2 Dewey International University: Principle of Economics (Problem Solving) by Dr. Sou Veasna

3 CHAPTER 04: ELASTICITY 1. Refer to the Table 1 & 2; calculate the cross-elasticity of demand Table-1: Port and Beef Price of Pork ($) Quantity of Beef (Kgs) Table-2: Car and Gasoline Gasoline ($)/L Quantity of Car (Unit) When price increases $43 to $49 per unit which led to decrease the quantity of demanded from 220 units to 240 units. What is the price of elasticity? 3. Suppose that price elasticity of crude oil supply equals 2.5. How much price will increase, if the quantity of supply equal 20%? 4. When price of gasoline increases 10% which lead quantity demanded of gasoline decreases 8%. What is the price elasticity of demand? 5. One company increases price of selling a new car model from $20,000 to $25,000 which lead to decrease the quantity demanded from 10,000units to 5,000units. Calculate the price elasticity of demand (use the formula of the mid-point elasticity). 6. A pizza company has a special sale discount at $2 which equal 25% and lead to increase sale from 110 pieces to 118 pieces, respectively. Calculate the price of elasticity (use the formula of point elasticity). 7. On Tuesday, the price and quantity demanded are $7 and 120 units, respectively. Ten days later, the price and quantity demanded are $6 and 150 units, respectively. What is the price elasticity of demand between the $7 and $6 prices? 8. At point A on a demand curve, price is $10 and quantity demanded is 100. At point B, price is $12 and quantity demanded is 80. What does price elasticity of demand equal between points A and B? 9. What does it mean to say that price elasticity of demand is 1.22? 10. A college raises its annual tuition from $23,000 to $24,000, and its student enrollment falls from 4,877 to 4,705. Compute the price elasticity of demand. Is demand elastic or inelastic? 3 Dewey International University: Principle of Economics (Problem Solving) by Dr. Sou Veasna

4 11. As the price of good X rises from $10 to $12, the quantity demanded of good Y rises from 100 units to 114 units. Are X and Y substitutes or complements? What is the cross elasticity of demand? 12. The quantity demanded of good X rises from 130 to 145 units as income rises from $2,000 to $2,500 a month. What is the income elasticity of demand? 13. The quantity supplied of a good rises from 120 to 140 as price rises from $4 to $5.50. What is the price elasticity of supply? 14. At the initial price of $10, the quantity demanded is 100. When the price rises at $20, the quantity demanded falls to 90. What is the elasticity? 15. In 2003, when music downloading first took off, Universal Music slashed the price of a CD from $21 to $15. The company said that it expected the price cut to boost the quantity of CDs sold by 30 percent, other things remaining the same. What was Universal Music s estimate of the price elasticity of demand for CDs? Was the demand estimated to be elastic or inelastic? 16. When the price of ice cream rises from $3 to $5 a scoop, the quantity of ice cream bought decreases by 10 percent. The price elasticity of demand for ice cream is. A. 5 B. 0.2 C. 50 D In Pioneer Ville, the price elasticity of demand for bus rides is 0.5. When the price of a bus ticket rises by 5 percent,. A. the demand for bus rides increases by 10 percent B. the quantity of bus rides demanded increases by 2.5 percent C. the demand for bus rides decreases by 2.5 percent D. the quantity of bus rides demanded decreases by 2.5 percent 18. The price elasticity of demand for a good is 0.2. A 10 percent rise in the price will the total revenue from sales of the good. A. decrease B. increase C. decrease the quantity sold with no change in D. not change 19. If the price of a good falls and expenditure on the good rises, the demand for the good is. A. elastic B. perfectly elastic C. inelastic 4 Dewey International University: Principle of Economics (Problem Solving) by Dr. Sou Veasna

5 D. unit elastic 20. When the price of a good rises from $5 to $7 a unit, the quantity supplied increases from 110 to 130 units a day. The price elasticity of supply is. The supply of the good is. A. 60; elastic B. 10; elastic C. 0.5; inelastic D. 2; inelastic 21. The cross elasticity of demand for good A with respect to good B is 0.2. A 10 percent change in the price of good B will lead to a percent change in the quantity of good A demanded. Goods A and B are. A. 2; substitutes B. 0.5; complements C. 2; complements D. 0.5; substitutes 22. A 2 percent increase in income increases the quantity demanded of a good by 1 percent. The income elasticity of demand for this good is. The good is a good. A. 2; normal B. 2; inferior C. 1/2; normal D. 2; inferior 5 Dewey International University: Principle of Economics (Problem Solving) by Dr. Sou Veasna