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exercise 1: suppose we are analyzing the market for hot chocolate, graphically illustrate the
impact each of the following would have on demand or supply. also show how equilibrium
price and equilibrium quantity would change.

a. winter starts and the weather turns sharly solder.

→ this information will affect demand positively. P increases.
→

b. the price of tea, a subtitle for hot chocolate, falls.

→P
tea decreases → QD 1 tea increases
​

​
​

→D
chocolate decreases → D shifts to left handed side

c. the price of cocoa beans decreases.

d. the price of whipped cream falls.

→P
cream decreases → Qcream increases
​ ​

→D
chocolate increases → D shifts to right hand side

e. a better method of harvesting cocoa beans is introduced.

→P
chocolate decreases → Qchocolate increases
​

→ S increases → S shifts to right handed side

f. the surgeon general of the US announces that hot chocolate cures acne.

g. protecting farmers dump millions of gallons of milk, causing the price of milk to rise

h. consumer income falls because of a recession.

→P
chocolate decreases → Qchocolate decreases
​

→ income decreases → D decreases → D shifts to left handed side

i. people expect the price of hot chocolate to increase next month.

→P
chocolate increases → Qchocolate decreases
​

→ D decreases → D shifts to left handed side

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 j. currently, the price of hot chocolate is $0.50 per cup above equilibrium.
→P
chocolate increases → QS > QD 
​ ​

3-step analysis

step 1: this shock/ information will affect demand ?, supply?, both?

step 2: positive or negative

step 3: P?, Q?

e.g: describe changes in quantity and price in the equilibrium

1. the market for paper journal

a) the salary for journalists increases.

→ viec tang luong tac dong den supply, negative. duong supply dich trai

question 1: how do you understand the “negative oil price”? please use the theory of demand
and suply to explain. this event is good or bad for the economy?

exercise 2:

a/ given the table below, graph the demand and supply curves for flashlights. make certain to
label the equilibrium price and equilibrium quantity.

price quantity demanded per month quantity supplied per month

$5 6000 10000

$4 8000 8000

$3 10000 6000

$2 12000 4000

$1 14000 2000

demand function: QD = a - bP ↔ 6000 = a - 5b, 8000 = a - 4b ↔ a = 16000, b = 2000 ↔

​

QD = 16000 - 2000P
​

supply function: QS = c + dP ↔ 10000 = c + 5d, 8000 = c + 4d ↔ c = 0, d = 2000 ↔ QS 

​ ​

= 2000P

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 QD = QS ↔ 16000 - 2000P = 2000P ↔ P = 4
​ ​

⇒ PE = 4, QE = 2000 ×4 = 8000

​ ​

b/ what is the equilibrium price and equilibrium quantity?

the equilibrium price: $4

the equilibrium price: 8000

c/ suppose the price is currently $5. what problem would exist in the market? what would you
expect to happen to price? show this on your graph.

at a price of $5, the quantity demanded

is 6000 while the quantity supplied is
10000. this would lead to a surplus of
4000 flashlights in the market. with the
surplus, the price of flashlights will
eventually fall.

d/ suppose the price is currently $2. what problem would exist in the market? what would you
expect to happen to price? show this on your graph.

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 at a price of $2, the quantity demanded
is 12000 while the quantity supplied is
4000. this would lead to a shortage of
8000 flashlights in the market. with the
shortage, the price of flashlights will
eventually rise.

exercise 3: the demand and supply functions are respectively: (D): P = 80 - 0.25Q, (S): P = 20
+ 0.25Q

a/ determine price and quantity in the equilibrium. draw the figure representing it. calculate
the CS, PS, TS and the elasticity at the equilibrium price.

(D): P = 80 - 0.25Q → QD = 320 - 4P ​

(S): P = 20 + 0.25Q → QS = - 80 + 4P ​

QD = QS ↔ 320 - 4P = - 80 + 4P ↔ P
​ ​

= 50

⇒ PE = 50, QE = 320 - 4 ×50 = 120

​ ​

CS = 12 ​
× QE ×(Pmax - PE ) = 12 ×
​ ​ ​ ​

120 ×(80 - 50) = 1800

PS = 12 ×QE ×(PE - Pmin ) = 12 ×

​ ​ ​ ​ ​

120 ×(50 - 20) = 1800

TS = CS + PS = 1800 + 1800 = 3600

P dQ
EDP(E) = ESP(E) = dP × Q
​ = -4 × ​ ​ ​

50 −5
120 = 3 ≈- 1.67
​ ​

b/ if the government impose a tax on seller: 10$/a product, what are new price and quantity in
the equilibrium. how much of the tax will the buyers pay, seller receive? calculate the TS, CS,
PS, DWL and the tax revenue. draw a figure.

Untitled 4
 the government impose a tax on seller:
10$/a product

→ (S): P = 20 + 10 + 0.25Q = 30 + 0.25Q

→ QS = - 120 + 4P
​

QD = QS ↔ 320 - 4P = - 120 + 4P ↔ P
​ ​

= 55

⇒ PE ’ = 55, QE ’ = 320 - 4 ×55 = 100

​ ​

tax burden on buyers = PE - PE ’ = $55 ​ ​

- $50 = $5

tax burden on sellers = tax amount - tax

burden on buyers = $10 - $5 = $5

CS = SΔABE’ = 12 x BE’ x AB = 12 x ​ ​

100 x (80 - 55) = 1250

PS = SΔBCE’ = 12 x BE’ x BC = 12 x ​ ​

100 x (55 - 30) = 1250

TS = SADFE’ = SΔADE - SΔE’EF = 12 x BE x AD - 12 x GE x E’F = 12 x 120 x (80 -

​ ​ ​ ​

1
20) - 2 x (120 - 100) x (55 - 45) = 3500
​

tax revenue = tax amount x quantity sold = 10 x 100 = 1000

DWL = SΔE’EF = 12 x GE x E’F = 12 x (120 - 100) x (55 - 45) = 100

​ ​

c/ if the government control price at 55$, how we understand this type of price control
(ceiling price or floor price)? what happen for market? calculate TS, CS, PS, DWL.

if the government control price at 55$,

this type of price control is floor price

at a price of 55$, the quantity

demanded is 100, while the quantity
supplied is 140. this would lead to a
surplus of 40 products in the market.
with this surplus, the price of products
will decrease
1 1
CS = SΔABF = 2 x BF X AB = 2 x ​ ​

100 x (80 - 55) = 1250

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 PS = SBCGF = 12 x BF x (BC + FG) =
​ ​

1
2
​x 100 x (55 - 20 + 10) = 2250

TS = CS + PS = 1250 + 2250 = 3500

DWL = SΔEFG = 12 x (55 - 45) x (120​

- 100) = 100

d/ if the government control price at 45$, how we understand this type of price control
(ceiling price or floor price)? what happen for market? calculate TS, CS, PS, DWL.

if the government control price at 45$,

the type of price control is ceiling price.

at a price of 45$, the quantity

demanded is 140, while the quantity
supplied is 100. this would lead to a
shortage of 40 products in the market.
with this shortage, the price of products
will increase.

CS = SABFG = 12 x BG x (AB + FG) =

​ ​

1
2 x 100 x (80 - 45 + 10) = 2250
​

PS = SΔBCG = 12 x BG x BC = 12 x
​ ​

100 x (45 - 20) = 1250

TS = CS + PS = 2250 + 1250 =34500

DWL = SΔEFG = 12 x (55 - 45) x (120​

- 100) = 100

exercise 4: new cars are normal goods. what will happen to the equilibrium price of new cars
if the price of gasoline rises, the price of steel falls, public transportation becomes cheaper
and more comfortable, auto-workers accept lower wages, and automobile insurance becomes
more expensive?
A. price will rise

B. price will fall.

C. price will stay exactly the same.
D. the price change will be ambiguous.

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 exercise 5: 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.

a/ what is your current total revenue for both groups?

revenue

for children: TRchildren = P x Q = $5 x 20 = $100 ​

for adults: TRadult = P x Q = $5 x 50 = $250

​

→ total revenue = TRchildren + TRadult = $100 + $250 = $350 ​ ​

b/ the elasticity of demand is more elasticity in which market?

QD adult = a - bP ↔ 40 = a - b x 8, 50 = a - b x 5 ↔ a = 200
​ ​

3
, b = 10
3
→ QD adult = 200
3
- ​ ​ ​ ​ ​

10 dQ P
3
P → EDP adult = dP x Q
​ = −10
​

3
​
5
x 50 = −1
3
 ​ ​ ​ ​ ​

QD children
 ​ = a - bP ↔ 10 = a - b x 6, 20 = a - b x 5 ↔ a = 70, b = 10 → QD adult
​  = 70 - ​ ​

dQ P 5
10P → EDP children
 = dP x Q
​ = - 10 x 20 = −5
2
​  ​ ​ ​ ​

|EDP adult | < |EDP children |

​ ​ ​ ​

→ the elasticity of demand is more elasticity in children market

c/ which market has the more inelastic demand?

|EDP adult
 | < |EDP children
​ ​  | ​ ​

→ adult market has more inelastic demand

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 d/ what is the elasticity of demand between the prices of $5 and $2 in the adult market? is this
elastic or inelastic?
Q1 −Q2
EDP = (Q + / (PP+1 −P 2 50−60
= (50+60)/2 $5−$2
/ ($5+$2)/2 = −7 ≈
33  - 0.21
​ ​
​ ​

Q )/2 P )/2
​ ​ ​ ​ ​ ​

1 2 ​

1 ​

2 ​ ​

the elasticity of demand between the prices of $5 and $2 in the adult market is inelastic
(|EDP | = 0.21 < 1)
​

e/ what is the elasticity of demand between $5 and $2 in the children’s market? is this elastic
or inelastic?
1 2Q −Q 1 2 P −P
20−50 $5−$2
EDP = (Q + / (P + = (20+50)/2 / ($5+$2)/2 = -1
​ ​
​ ​

Q )/2 P )/2
​ ​ ​ ​ ​

1 2 ​

1​

2 ​ ​

the elasticity of demand between the prices of $5 and $2 in the adult market is elastic (|E
DP | = 1)
​

f/ given the graphs and what your fiend 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?

revenue

for adult: TRadult = P x Q = $8 x 40 = $320

​

for children: TRchildren = P x Q = $3 x 40 = $120 ​

→ total revenue = TRadult + TRchildren = $320 + $120 = $440

​ ​

→ total revenue increases by $90

exercise 6: in general, elasticity is a measure of

A. the extent to which advances in technology are adopted by producers.

B. the extent to which a market is competitive.
C. how firms’ profits respond to changes in market prices.

D. how much buyers and sellers respond to changes in market conditions.

exercise 7: if the price of natural gas rises, when is the price elasticity of demand likely to be
the highest?
A. immediately after the price increase.

B. one month after the price increase.

C. three months after the price increase.

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 D. one year after the price increase.

exercise 8: which of the following is likely to have the most price inelastic demand?

A. white chocolate chip with macadamia nut cookies.

B. Mrs.Field’s chocolate chip cookies.

C. milk chocolate chip cookies.

D. cookies.

exercise 9: a person who takes a prescription drug to control high cholesterol most likely has
a demand for that drug that is:
A. inelastic.

B. unit elastic.
C. elastic.

D. highly responsive to changes in income.

exercise 10: there are very few, if any, good substitutes for motor oil. therefore,

A. the demand for motor oil would tend to be inelastic.

B. the demand for motor oil would tend to be elastic.
C. the demand for motor oil would tend to respond strongly to changes in prices of other
goods.
D. the supply of motor oil would tend to respond strongly to changes in people’s tastes for
large cars relative to their tastes for small cars.

exercise 11: if the price elasticity of demand for a good is 0.8, then which of the following
events is consistent with 4% decrease in the quantity of the good demanded?

A. a 0.2% increase in the price of the good.

B. a 3.2% increase in the price of the good.

C. a 4.8% increase in the price of the good.

D. a 5% increase in the price of the good.

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 exercise 12+13+14+15:

12. when the price is $30, total revenue is

A. $3000

B. $5000
C. $7000

D. $9000

TR($30) = P x Q = $30 x 300 = $9000

13. when price falls from $50 to $40, it can be inreferred that demand between those 2 prices
is

A. inelastic, since total revenue decreases from $8000 to $5000.

B. inelastic, since total revenue increases from $5000 to $8000.
C. elastic, since total revenue increases from $5000 to $8000.

D. unit elastic, since total revenue does not change.

Q −Q
1
EDP = (Q + 2
/ P 1 −P 2 = (100+200)/2
100−200 $50−$40
/ ($50+$40)/2 = -3
​ ​
​ ​

1 Q 2 )/2 (P 1 + P 2 )/2
​ ​ ​ ​ ​

​ ​ ​ ​

→ elastic

TR($50) = P x Q = $50 x 100 = $5000

TR($40) = P x Q = $40 x 200 = $8000

→ total revenue increases $3000

14. an increase in price from $20 to $30 would

A. increase total revenue by $2000.

B. decrease total revenue by $2000.

C. increase total revenue by $1000.
D. decrease total revenue by $1000.

TR($20) = P x Q = $20 x 400 = $8000

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 TR($30) = P x Q = $30 x 300 = $9000

→ total revenue increases by $1000

15. an increase in price from $30 to $35 would

A. increase total revenue by $250.

B. decrease total revenue by $250.
C. increase total revenue by $500.

D. decrease total revenue by $500.

TR($30) = P x Q = $30 x 300 = $9000

TR($35) = P x Q = $35 x 250 = $8750

→ total revenue decreases by $250

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