Econ 200 Final Exam
Economics 200: Principles of Microeconomics Due (in class): Monday, Oct. 13
Professor MacDonald
Your Name: _______________________________
Problem Set 1
Question 1 (2 points): Explain how each of the following events affects the equilibrium price and quantity in the associated market. Hint: in each case, either the supply or the demand curve shifts, but not both. Explain your answer in one sentence and draw a graph to accompany your answer, being sure to correctly label all parts of the graph.
Event 1: A drought leads to a shortage of agricultural products such as apples, increasing the price of apples. Market: apple juice.
Event 2: A rise in oil prices increases the price of gas. Market: automobiles.
Event 3: The price of a can of Coca Cola increases. Market: cans of Pepsi. …show more content…
Event 4: A new study is published, declaring that hazelnuts can help prevent a certain form of cancer.
Market: hazelnuts.
Question 2 (2 points): Given the following data for individuals and firms, draw the market demand curve and market supply curve for Blue Ray movies. Draw only the market demand and supply curves, not the individual demand and supply curves. After you have drawn the curves, label the equilibrium and then answer the questions below:
Price $8.00 $8.50 $9.00 $9.50 $10.00 $10.50
Quantity Demanded (units per week)
Mark 10 8 6 5 2 1
Lynn 8 7 6 6 2 1
Jason 5 4 3 2 1 0
Erin 6 5 3 2 0 0
Quantity Supplied (units per week)
Firm A 0 1 2 3 6 7
Firm B 2 3 4 5 5 6
Firm C 0 1 2 3 7 8
Firm D 1 3 4 4 8 9
a) What is the equilibrium price and quantity? Label them “P” and
“Q”.
b) If consumers initially came into this market facing a price of $9.00, would there be a shortage orsurplus (hint: a shortage is a case where demand exceeds supply; a surplus is a case where supply exceeds demand)? Why?
c) Calculate what the shortage or surplus would be in this case.
d) From that initial price of $9.00, how would the price change to reach equilibrium (i.e., would it move upward or downward)? Note that what you are doing here is describing how the market will work to make supply and demand equal each other, which is the market mechanism. Explain your answer in a sentence or two.
e) Hypothetically speaking, suppose preferences for Blue Rays sharply drop due to the rise of digital distribution technologies (iTunes, Google Play, Netflix, etc.). Would this shift the market demand curve to the right or the left? Why?
f)Describe in words how this would affect the equilibrium price and quantity of Blue Ray movies.
Question 3 (2 points): Government intervention. Draw a supply and demand diagram for the textbook market, and label the equilibrium price as $150 and the equilibrium quantity as 4000 books. Label all parts of your graph correctly. Then, answer the following questions:
a) Suppose the government imposes a price ceiling of $100 in this market. Demonstrate the effect of this regulation on the market for textbooks: is there surplus? Shortage? Neither? Explain your answer in a sentence or two.
c) Suppose the government retracts its previous decree, and instead imposes a price ceiling of $200 in this market. Demonstrate the effect of this regulation on the market for textbooks: is there surplus?
Shortage? Neither? Explain your answer in a sentence or two.
Question 4 (1.5 point): Applying Elasticity, part I. Suppose that a local water company observes that when the price of water rises from $0.40 to $0.45 per gallon, the quantity demanded decreases from
38,000 to 37,000 gallons. Answer the following questions:
a) What is the price elasticity of demand for water? Show all steps you take to calculate it, using the same formulas we used in class.
b) Based on your answer in part a, is the demand curve for water elastic or inelastic? Why? Explain in a sentence. c) Calculate the change in total revenue caused by the increase in price. Show all steps used to find your answer. Does this result make sense given what we know about the relationship between elasticityand changes in total revenue discussed in class?
Question 5 (2.5 points): Applying Elasticity, part II. The table below provides the demand schedule for rooms on the website “Airbnb”. Use the information provided to complete the table, filling in the blanks where indicated. Then, answer the questions below.
Price Quantity Demanded Total Revenue % Change in
Price
% Change in
Quantity Demanded
Elasticity
$10 20 ______
_____ _____ ______
$20 18 ______
_____ _____ _____
$30 16 _____
______ _____ ____
$40 14 _____
_____ _____ ____
$50 12 _____
_____ _______ ____
$60 8 ______
a) Over what range of prices is the demand for rooms elastic? To maximize total revenue, should
Airbnb tenants raise or lower the price within this range? Explain in a sentence.
b) Over what range of prices is the demand for rooms inelastic? To maximize total revenue, should
Airbnb raise or decrease the price within this range? Explain in a sentence.
Professor MacDonald
Your Name: _______________________________
Problem Set 1
Question 1 (2 points): Explain how each of the following events affects the equilibrium price and quantity in the associated market. Hint: in each case, either the supply or the demand curve shifts, but not both. Explain your answer in one sentence and draw a graph to accompany your answer, being sure to correctly label all parts of the graph.
Event 1: A drought leads to a shortage of agricultural products such as apples, increasing the price of apples. Market: apple juice.
Event 2: A rise in oil prices increases the price of gas. Market: automobiles.
Event 3: The price of a can of Coca Cola increases. Market: cans of Pepsi. …show more content…
Event 4: A new study is published, declaring that hazelnuts can help prevent a certain form of cancer.
Market: hazelnuts.
Question 2 (2 points): Given the following data for individuals and firms, draw the market demand curve and market supply curve for Blue Ray movies. Draw only the market demand and supply curves, not the individual demand and supply curves. After you have drawn the curves, label the equilibrium and then answer the questions below:
Price $8.00 $8.50 $9.00 $9.50 $10.00 $10.50
Quantity Demanded (units per week)
Mark 10 8 6 5 2 1
Lynn 8 7 6 6 2 1
Jason 5 4 3 2 1 0
Erin 6 5 3 2 0 0
Quantity Supplied (units per week)
Firm A 0 1 2 3 6 7
Firm B 2 3 4 5 5 6
Firm C 0 1 2 3 7 8
Firm D 1 3 4 4 8 9
a) What is the equilibrium price and quantity? Label them “P” and
“Q”.
b) If consumers initially came into this market facing a price of $9.00, would there be a shortage orsurplus (hint: a shortage is a case where demand exceeds supply; a surplus is a case where supply exceeds demand)? Why?
c) Calculate what the shortage or surplus would be in this case.
d) From that initial price of $9.00, how would the price change to reach equilibrium (i.e., would it move upward or downward)? Note that what you are doing here is describing how the market will work to make supply and demand equal each other, which is the market mechanism. Explain your answer in a sentence or two.
e) Hypothetically speaking, suppose preferences for Blue Rays sharply drop due to the rise of digital distribution technologies (iTunes, Google Play, Netflix, etc.). Would this shift the market demand curve to the right or the left? Why?
f)Describe in words how this would affect the equilibrium price and quantity of Blue Ray movies.
Question 3 (2 points): Government intervention. Draw a supply and demand diagram for the textbook market, and label the equilibrium price as $150 and the equilibrium quantity as 4000 books. Label all parts of your graph correctly. Then, answer the following questions:
a) Suppose the government imposes a price ceiling of $100 in this market. Demonstrate the effect of this regulation on the market for textbooks: is there surplus? Shortage? Neither? Explain your answer in a sentence or two.
c) Suppose the government retracts its previous decree, and instead imposes a price ceiling of $200 in this market. Demonstrate the effect of this regulation on the market for textbooks: is there surplus?
Shortage? Neither? Explain your answer in a sentence or two.
Question 4 (1.5 point): Applying Elasticity, part I. Suppose that a local water company observes that when the price of water rises from $0.40 to $0.45 per gallon, the quantity demanded decreases from
38,000 to 37,000 gallons. Answer the following questions:
a) What is the price elasticity of demand for water? Show all steps you take to calculate it, using the same formulas we used in class.
b) Based on your answer in part a, is the demand curve for water elastic or inelastic? Why? Explain in a sentence. c) Calculate the change in total revenue caused by the increase in price. Show all steps used to find your answer. Does this result make sense given what we know about the relationship between elasticityand changes in total revenue discussed in class?
Question 5 (2.5 points): Applying Elasticity, part II. The table below provides the demand schedule for rooms on the website “Airbnb”. Use the information provided to complete the table, filling in the blanks where indicated. Then, answer the questions below.
Price Quantity Demanded Total Revenue % Change in
Price
% Change in
Quantity Demanded
Elasticity
$10 20 ______
_____ _____ ______
$20 18 ______
_____ _____ _____
$30 16 _____
______ _____ ____
$40 14 _____
_____ _____ ____
$50 12 _____
_____ _______ ____
$60 8 ______
a) Over what range of prices is the demand for rooms elastic? To maximize total revenue, should
Airbnb tenants raise or lower the price within this range? Explain in a sentence.
b) Over what range of prices is the demand for rooms inelastic? To maximize total revenue, should
Airbnb raise or decrease the price within this range? Explain in a sentence.