Chapter 2a. Questions

CHAPTER 2: DETERMINANTS OF PRICE
Demand, supply and equilibrium
1. The individual demand and supply functions are Q d = 20 -2P and Qs = 10 + 3P. Based
on the information as given :
a. Complete the following table.

Price Quantity Quantity
(RM) Demanded Supplied
1
2
3
4
5
6
7
8
b. Based on the above table, determine the equilibrium price and quantity.
c. Sketch a diagram which shows the market equilibrium.
2. The demand and supply functions are given as below :
Qd = 220 – 3P
Qs = -80 + 7P
Calculate :
a. The equilibrium price and quantity
b. Sketch a diagram which shows the market equilibrium.
Qd = 13.5 – 8P
Qs = -4.5 + 16P
Calculate :
Qd = 14 – 8P
Qs = -4 + 10P
Calculate :
1
Qd = 100 – 20P
Qs = -20 + 40P
Calculate :
6. The following information shows the demand and supply functions for good A in
short run.
Qd = 1500 – 2P
Qs = 1000 + 3P
Based on the information above :
a. Calculate the equilibrium price and quantity

b. Complete the table below
P Qd Qs
1
2
3
4
5
6
c. Sketch the market equilibrium.
7. In a market there are 3 buyers and a seller. The demand from each buyer is as stated
in the equations below :
QAd = 300 – 20P

QBd = 200 – 20P
QCd = 150 – 10P
Where the equation for supply is :
Qs = 50 + 25P
2
a. Fill in the blanks below
P QAd QBd QCd Qm Qs

12
10
8
6
Qm = Quantity market demanded
Qs = Quantity market supplied
b. What is the equilibrium price and quantity ?
8. The following ordered pairs of price and quantity demanded describe Joe’s demand
for cups of gourmet coffee.
Price per cup of coffee Quantity demanded of

(RM) coffee
(cup)
5 2
4 4
3 6
2 8
1 10
a. Plot and connect the ordered pairs on the a graph.

b. What is the slope of Joe’s demand curve for coffee in the price range of RM5 and
RM4?
c. What is the slope of Joe’s demand curve for coffee in the price range of RM2 and
RM1?
d. Are the price of coffee and Joe’s quantity demanded of coffee positively
correlated or negatively correlated?
e. If the price of coffee moves from RM2 per cup to RM4 per cup, what happens to
the quantity demanded? Is this a movement along a curve or a shift in the curve?
Price per cup of coffee Quantity demanded of

(RM) coffee
(cup)
5 4
4 6
3 8
2 10
1 12
3
f. Suppose Joe’s income doubles from RM20,000 per year to RM40,000 per year.
Now the following ordered pairs describes Joe’s demand for gourmet coffee.
Plot this ordered pairs on the graph in question (a)
g. Did the doubling of Joe’s income cause a movement along his demand curve or
shift in his demand curve?
9. Suppose we have the following market supply and demand schedule for bicycles:
Price Quantity demanded Quantity supplied

(RM) (unit) (unit)
100 70 30
200 60 40
300 50 50
400 40 60
500 30 70
600 20 80
a. Plot the supply curve and the demand curve for bicycle in a graph.
b. What is the equilibrium price of bicycles?
c. What is the equilibrium quantity of bicycles?
d. If the price of bicycles were RM100, is there a surplus or shortage? How many
units of surplus or shortage are there? Will this cause the price to rise or fall?
e. If the price of bicycles were RM400, is there a surplus or a shortage? How many
units of surplus or shortage are there? Will this cause the price to rise or fall?
10. Suppose the demand and Supply curves for rice in Japan are given by the following
equations:
Qd = 120 – 30P
QS = 40 + 10P
Where Qd = million tons of rice the Japanese would like to buy each year; Q S =
million tons of rice the Japanese farmers would like to sell each year and P = price
per ton of rice (in hundreds)
a. Fill the following table
Price Quantity demanded Quantity supplied

(RM) (unit) (unit)
0.50
1.00
1.50
2.00
2.50
3.00
4
b. Use the information in the table to find the equilibrium price and quantity.
11. Use the following diagram to calculate total consumer surplus at a price of RM12
and production of 500 thousand flu vaccinations per day. For the same equilibrium,
calculate total producer surplus. Assuming price remained at RM12 but production
was cut to 200 thousand vaccinations per day, calculate producer surplus and
consumer surplus. Calculate the deadweight loss from underproduction.
Price per vaccination (RM)

24
20
16
12
0 100 200 300 400 500 900
Thousands of vaccinations per day
12. The following graph represents the market for DVDs.
Price of DVDs
0 3 6 9 12 15 18 21 24 27 30
Quantity of DVDs (millions)
5
a. Find the values of consumer surplus and producer surplus when the market is in
equilibrium and identify these areas on the graph.
b. If underproduction occurs in this market and only 9 million DVDs are produced,
what happens to the amounts of consumer surplus and producer surplus? What is
the value of the deadweight loss? Identify these areas on the graph.
c. If overproduction occurs in this market and 27 million DVDs are produced, what
happens to the amounts of consumer surplus and producer surplus? Is there a
deadweight loss with overproduction? If so, what is its value? Identify these
areas on the graph.

Chapter 2a. Questions

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Chapter 2a. Questions

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CHAPTER 2: DETERMINANTS OF PRICE

Demand, supply and equilibrium

a. Complete the following table.

2. The demand and supply functions are given as below :

3. The demand and supply functions are given as below :

4. The demand and supply functions are given as below :

5. The demand and supply functions are given as below :

Based on the information above :

a. Calculate the equilibrium price and quantity

c. Sketch the market equilibrium.

QAd = 300 – 20P

Where the equation for supply is :

P QAd QBd QCd Qm Qs

b. What is the equilibrium price and quantity ?

Price per cup of coffee Quantity demanded of

a. Plot and connect the ordered pairs on the a graph.

Price per cup of coffee Quantity demanded of

Price Quantity demanded Quantity supplied

a. Fill the following table

Price Quantity demanded Quantity supplied

Price per vaccination (RM)

0 100 200 300 400 500 900

Thousands of vaccinations per day

12. The following graph represents the market for DVDs.

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