lOMoARcPSD|46342985 lOMoARcPSD|46342985 HANOI UNIVERSITY
FACULTY OF MANAGEMENT AND TOURISM MICROECONOMICS TUTORIAL EXERCISES Semester: Fall 2021 lOMoARcPSD|46342985 Contents T UTORIAL 1: INTRODUCTION
.................................................... . . . . . . . . . . . . . . . . . . . . . . . .3 T UTORIAL 2: T
HE MARKET FORCES, SUPPLY AND DEMAND . . . . . . . . . . . . . . . .1 1 T UTORIAL 3: ELASTICITY
............................................................................... . . .1 8 T
UTORIAL 4: CONSUMERS, PRODUCERS & MARKET EFFICIENCY ....... . .2 5 T UTORIAL 5
................................................................................................. . . . . . . . . . .3 5 T
UTORIAL 6: THE THEORY OF CONSUMER CHOICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4 3 T
UTORIAL 7: COST OF PRODUCTION
........................................................... . . .5 0 T
UTORIAL 8: FIRMS IN COMPETITIVE MARKET
........................... . . . . . . . . . . . . . . .5 6 T UTORIAL 9: MONOPOLY
................................................................ . . . . . . . . . . . . . . . . . .6 4 T UTORIAL 10&11: M
ONOPOLISTIC COMPETITION & OLIGOPOLY . . . . . . . .7 3 T
UTORIAL 12: THE MARKET FAILURES
.......................................... . . . . . . . . . . . . . . .8 4 lOMoARcPSD|46342985 TUTORIAL 1: INTRODUCTION
10 Principles of economics and thinking like an economist
Coverage: Chapter 1 & Chapter 2 Multiple Choice
Identify the choice that best completes the statement or answers the question. 0 Economics is the study of 0.0 production methods.
0.1 how society manages its scarce resources.
0.2 how households decide who performs which tasks.
0.3 the interaction of business and government. 0.1
A typical society strives to get the most it can from its scarce resources. At the same time, the
society attempts to distribute the benefits of those resources to the members of the society in a fair
manner. In other words, the society faces a tradeoff between 1.0 guns and butter. 1.1 efficiency and equality.
1.2 inflation and unemployment. 1.3 work and leisure. Guns and butter
A classic model of the production possibility curve by using the relationship between "guns", or
military spending, and "butter", or food supplies, in a nation's expenditures, in order to
demonstrate that the increase of one relies on the decrease of the other.
0 High-school athletes who skip college to become professional athletes 0
obviously do not understand the value of a college education. 1
usually do so because they cannot get into college. 2
understand that the opportunity cost of attending college is very high. 3
are not making a rational decision since the marginal benefits of college outweigh
the marginal costs of college for high-school athletes.
1 A construction company has built 50 houses so far this year at a total cost to the company of $8 million.
If the company builds a 51st house, its total cost will increase to $8.18 million. Which of the following statements is correct? 0
For the first 50 houses, the average cost per house was $160,000. 1
The marginal cost of the 51st house, if it is built, will be $180,000. 2
If the company can experience a marginal benefit of $190,000 by building the 51st
house, then the company should build it. 3 All of the above are correct.
2 The principle that trade can make everyone better off applies to 0 individuals. 1 families. 2 countries. 3 All of the above
3 An example of an externality is the impact of ( 0
bad weather on the income of farmers. 1
the personal income tax on a person's ability to purchase goods and services. 2
pollution from a factory on the health of people in the vicinity of the factory. 3
increases in health care costs on the health of individuals in socie lOMoARcPSD|46342985
5888 Which of these activities will most likely result in an external benefit? 5888
A college student buys a deck of cards to play solitaire in her dorm room. 5889
An elderly woman plants a flower garden on the vacant lot next to her house. 5890
An executive purchases a book to read on a business trip. 5891
A ten-year-old uses his allowance to buy new Nike shoes.
5889 Which of the following is the most correct statement about the relationship between
inflation (lạm phát) and unemployment? 5888
In the short run, falling inflation is associated with falling unemployment. 5889
In the short run, falling inflation is assoc iated with rising unemployment. 5890
In the long run, falling inflation is associated with falling unemployment. 5891
In the long run, falling inflation is associated with rising unemployment.
5890 Which of the following statements is (are) correct? 5888
Relative to other scientists, economists find it more difficult to generate useful data. 5889
Theory and observation are important in economics as well as in other sciences. 5890
To obtain data, economists often rely upon the natural experiments offered by history. 5891 All of the above are correct. 5891
Just like models constructed in other areas of science, economic models 5888
incorporate assumptions that contradict reality. 5889
incorporate all details of the real world. 5890 complicate reality. 5891
avoid the use of diagrams and equations. 5892
Which of these statements about economic models is correct? 5888
For economists, economic models provide insights about the world. 5889
Economic models are built with assumptions. 5890
Economic models are often composed of equations and diagrams. 5891 All of the above are correct.
5893Which of the following transactions does not take place in the markets for factors of production in the circular-flow diagram? 5888
a landowner leases land to a farmer 5889
a farmer hires a teenager to help with harvest 5890
a retired farmer sells his combine to a new farmer 5891 a woman buys corn for dinner 5894
The following table contains some production possibilities for an economy for a given month. Sweaters Gloves 4 300 6 ? 8 100
If the production possibilities frontier is bowed outward, then “?” could be a. 100. b. 150. 300 - x < x - 100 c. 200. d. 250. lOMoARcPSD|46342985 Figure 2-6 barrels 45 40 35 A 30 D 25 C 20 B 15 0 F 10 5 2 4 6 8 10 12 14 16 bathtubs 0 Refer to Figure 2-6 0 0 A, B 1 A,B,D 2 A,B,C,F,G 3 C,F,G 1 Refer to Figure 2-6 0 A, B 1 C,D,F,G 2 C,F,G 3 D produce at which r point(s)? 1 Inefficient production is Figure 2-9 Panel (a) Panel (b) televisions televisions 13 13 Q 12 12 11 11 U 10 10 9 9 8 8 7 7 S 6 6 R 5 5 4 4 3 3 2 2 1 1 T 1 2 3 4 5 6 radios 1 2 3 4 5 6 7 8 9 10 radios lOMoARcPSD|46342985
0 Refer to Figure 2-9, Panel (a). The opportunity cost of one television is highest when the economy produces 0 0 televisions. 1 6 televisions. 2 10 televisions. 3 12 televisions. 1 Positive statements are 0 prescriptive. 1
claims about how the world should be. 2 claims about how the world is. 3
made by economists speaking as policy advisers.
2 Which of the following is an example of a positive, as opposed to normative, statement? 0
Income tax rates should not have been cut as they were a few years ago. 1
The quantity of money has grown too slowly in recent years. 2
When the quantity of money grows rapidly, inflation is a predictable consequence. 3
All of the above are positive statements. Figure 2-13 price of a dozen roses 40 35 30 25 A C 20 B 15 10 5 1 2 3 4 5 6 7 8 9 10 dozens of roses
23 Refer to Figure 2-13. The movement from point A to point B is a(n) 23 shift of the demand curve.
24 indication of a change in preferences for roses.
25 movement along the demand curve.
26 indication of an increase in income.
24 Refer to Figure 2-13. The movement from point B to point C could have been caused by 23 inflation. 24 a change in income.
25 a change in the price of roses.
26 a change in the cost of producing roses. lOMoARcPSD|46342985 23
There is one mistake in each of the following sentences. Find and correct them 23
Economics is the study of how society allocates its unlimited resources. scarce 24
If wages for accountants rose, then accountants’ leisure time would have a lower opportunity cost. higher 25
A rational decisionmaker takes an action if and only if the marginal cost exceeds the marginal benefit decision maker is less than equality 23
Efficiency means everyone in the economy should receive an equal share of the goods and services produced. 24
The government can potentially improve market outcomes if market inequalities
or failure market equilibrium exists 25
Economic models include many details to allow us to see what is truly important. omit 26
In the circular-flow diagram, firms own the factors of production and use them to produce goods and services. buy lOMoARcPSD|46342985 Figure 2-14 23
Refer to Figure 2-14. If this economy uses all its resources in the dishwasher industry, it
produces 35 dishwashers and 75 doghouses. 0 10 9.
Refer to Figure 2-14. The opportunity cost of moving from point A to point D is 5 dishwashers. 10.
Refer to Figure 2-14. The opportunity cost of an additional doghouse decreases as more increases doghouses are produced. III. Short Answer 23
23 The prairie dog has always been considered a problem for American cattle ranchers. They dig holes that
cattle and horses can step in, and they eat grass necessary for cattle. Recently, ranchers have discovered
that there is a demand for prairie dogs as pets. In some areas, prairie dogs can sell for as high as $150
each. Cattlemen are now fencing off prairie dog towns on their land so these towns will not be disturbed by their cattle.
Draw a rancher’s production possibilities frontier showing increasing opportunity cost of cattle
production in terms of prairie dog production. Using a separate graph for each situation, show what would
happen to the initial production possibilities frontier in each of the following situations: MIC MIC lOMoARcPSD|46342985 MIC
23 The outcome is efficient, with ranchers choosing to produce equal numbers of cattle and prairie dogs.
24 As a protest against the government introducing the gray wolf back into the wild in their
state, ranchers decide to withhold 25 percent of the available grassland for grazing.
25 The price of prairie dogs increases to $200 each, so ranchers decide to allot
additional land for prairie dogs.
26 The government grants new leases to ranchers, giving them 10,000 new acres of grassland each for grazing.
27 A drought destroys most of the available grass for grazing of cattle, but not for
prairie dogs since they also eat plant roots.
0 Draw a production possibilities frontier showing increasing opportunity cost of hammers in terms of horseshoes. 0
On the graph, identify the area of feasible outcomes and the area of infeasible outcomes. 1
On the graph, label a point that is efficient and a point that is inefficient. 2
On the graph, illustrate the effect of the discovery of a new vein of iron ore, a
resource needed to make both horseshoes and hammers, on this economy. 3
On a second graph, illustrate the effect of a new computerized assembly line in
the production of hammers on this economy.
1 Identify each of the following topics as being part of microeconomics or macroeconomics:
a. the impact of a change in consumer income on the purchase of luxury automobiles
b. the effect of a change in the price of Coke on the purchase of Pepsi
23 the impact of a war in the Middle East on the rate of inflation in the United States
24 factors influencing the rate of economic growth
e. factors influencing the demand for tractors
23 the impact of tax policy on national saving
MICg. the effect of pollution taxes on the U.S. copper industry
MIC h. the degree of competition in the cable television industry 5888
the effect of a balanced-budget amendment on economic
stability MIC j. the impact of deregulation on the savings and loan industry lOMoARcPSD|46342985
0 Use the following graph to answer the following questions.
0 How would point J be represented as an ordered pair? J(20,24)
1 What type of curve is this? Demand
2 Does this curve show a positive or negative correlation between price and quantity? Negative
3 Compute the slope of D1 between points J and L. 8/20=0,4 (deltaY/delta X rise/run)
4 What is the slope of D1 between points L and N? Why would you not have to calculate this answer? 0,4
5 What is it called if we move from D1 to D2? shift
6 How do you know that the slope of D2 is the same as the slope of D1? The same price and quantity price 40 36 32 28 J K 24 20 L M 16 12 N 8 4 D1D2
10 20 30 40 50 60 70 80 quantity horseshoes horseshoes inefficient point efficient point hammers hammers lOMoARcPSD|46342985 TUTORIAL 2:
THE MARKET FORCES, SUPPLY AND DEMAND
Coverage: Chapter 4 0 Multiple Choice
Identify the choice that best completes the statement or answers the question.
1.In a competitive market, the quantity of a product produced and the price of the product are determined by 0 a single buyer. 1 a single seller. 2
one buyer and one seller working together. 3 all buyers and all sellers.
0 Which of the following is not a characteristic of a perfectly competitive market? 0
Different sellers sell identical products. 1 There are many sellers. 2
Sellers must accept the price the market determines. 3
All of the above are characteristics of a perfectly competitive market.
1 Which of the following is not a characteristic of a perfectly competitive market?
a. Sellers set the price of the product.
buyers and sellers in perfectly competitive markets must b. There are many sellers.
accept the price the market determines, they are said to be
c. Buyers must accept the price the market determines. price takers
d. All of the above are characteristics of a perfectly competitive market.
4. The law of demand states that, other things equal,
a. when the price of a good falls, the demand for the good rises.
b. when the price of a good rises, the quantity demanded of the good rises.
c. when the price of a good rises, the demand for the good falls.
d. when the price of a good falls, the quantity demanded of the good rises. Table 4-1 Price Aaron’s Angela’s Austin’s Alyssa’s Quantity Quantity Quantity Quantity Demanded Demanded Demanded Demanded $0.00 20 16 4 8 $0.50 18 12 6 6 $1.00 14 10 2 5 $1.50 12 8 0 4 $2.00 6 6 0 2 $2.50 0 4 0 0
0 Refer to Table 4-1. If these are the only four buyers in the market, then the market quantity demanded at a price of $2 is 0 0 units. 1 3.5 units. 2 6 units. 3 14 units. Table 4-2 lOMoARcPSD|46342985 Price Audrey’s Bob’s Chuck’s Dottie’s Quantity Quantity Quantity Quantity Demanded Demanded Demanded Demanded $12 2 1 3 4 $10 4 4 4 5 $8 6 7 5 6 $6 8 8 4 7 $4 10 9 3 8 $2 12 10 2 9
23Refer to Table 4-2. Whose demand does not obey the law of demand? 23 Audrey’s 24 Bob’s 25 Chuck’s 26 Dottie’s
24 Which of the following events would cause a movement upward and to the left along the demand curve for olives?
23 The number of buyers of olives decreases.
24 Consumer income decreases, and olives are a normal good.
25 The price of pickles decreases, and pickles are a substitute for olives. 26 The price of olives rises.
25 You love peanut butter. You hear on the news that 50 percent of the peanut crop in the South has been
wiped out by drought, and that this will cause the price of peanuts to double by the end of the year. As a result,
23 your demand for peanut butter will increase, but not until the end of the year.
24 your demand for peanut butter increases today.
25 your demand for peanut butter decreases as you look for a substitute good.
26 your demand for peanut butter shifts left today. Figure 4-2 price P P' A B quantity Q Q' D lOMoARcPSD|46342985
23Refer to Figure 4-2. The movement from point A to point B on the graph shows 23 a decrease in demand. 24 an increase in demand.
25 a decrease in quantity demanded.
26 an increase in quantity demanded. Figure 4-4 Panel (a) Panel (b) price price P' 5888 D D' D Q'Q quantity quantity 512
Refer to Figure 4-4. The graphs show the demand for cigarettes. In Panel (b), the arrows are
consistent with which of the following events? 512.0
The price of cigarettes increased. 512.1
A tax was placed on cigarettes. 512.2
The prohibition of cigarette advertisements on television. 512.3
Tobacco and marijuana are complements and the price of marijuana decreased. 513
A movement downward and to the left along a supply curve is called 513.0 an increase in supply. 513.1 a decrease in supply. 513.2
a decrease in quantity supplied. 513.3
an increase in quantity supplied. 514
An increase in the price of oranges would lead to 514.0
an increased supply of oranges. 514.1
a reduction in the prices of inputs used in orange production. 514.2
an increased demand for oranges. 514.3
a movement up and to the right along the supply curve for oranges. 515
What will happen in the rice market now if sellers expect higher rice prices in the near future? 515.0
The supply of rice will increase. 515.1
The supply of rice will decrease. 515.2
The supply of rice will be unaffected. 515.3
The demand for rice will decrease. lOMoARcPSD|46342985
In a given market, how are the equilibrium price and the market-clearing price related? There is no relationship. They are the same price.
The market-clearing price exceeds the equilibrium price.
The equilibrium price exceeds the market-clearing price.
If there is a shortage of farm laborers, we would expect
the wage of farm laborers to increase.
the wage of farm laborers to decrease.
the price of farm commodities to decrease.
a decrease in the demand for substitutes for farm labor. Table 4-7
The demand schedule below pertains to sandwiches demanded per week. Price Charlie’s Maxine’s Quinn’s Quantity Quantity Quantity Demanded Demanded Demanded $3 3 4 3 $5 1 2 x
0 Refer to Table 4-7. Suppose Charlie, Maxine, and Quinn are the only demanders of sandwiches. Also suppose the following: x = 2
the current price of a sandwich is $3.00
the market quantity supplied of sandwiches is 4
the slope of the supply curve is 2 Then
0there is currently a shortage of 6 sandwiches and the equilibrium price of a sandwich is less than $3.00.
1there is currently a shortage of 6 sandwiches and the equilibrium price of a sandwich is $5.00.
2there is currently a surplus of 6 sandwiches and the equilibrium price of a sandwich is less than $3.00.
3there is currently a surplus of 6 sandwiches and the equilibrium price of a sandwich is $5.00. lOMoARcPSD|46342985 Figure 4-11 price 20 S 18 16 14 12 10 8 6 4 2 D 1 2 3 4 5 6 7 8 9 10 quantity
23 Refer to Figure 4-11. At a price of $4, which of the following is correct?
23 there is a surplus of 3 units
24 there is a surplus of 6 units
25 there is a shortage of 3 units
26 there is a shortage of 6 units Figure 4-13
The diagram below pertains to the supply of paper in university markets. price SA y SB x quantity
ᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀ܀ĀȀ Ā ⸀ ЀĀȀĀ Ā
⸀ ᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀĀ1024 Refer to Figure 4-13.
All else equal, the return of college students to campus in the fall would cause a move 1024.0 from x to y. 1024.1 from y to x. 1024.2 from SA to SB. 1024.3 from SB to SA.
ᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀ܀ĀȀ Ā ⸀ ЀĀȀĀ Ā
⸀ ᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀĀ1025 If the supply of a product
increases, then we would expect 1025.0
equilibrium price to increase and equilibrium quantity to decrease. 1025.1
equilibrium price to decrease and equilibrium quantity to increase. 1025.2
equilibrium price and equilibrium quantity both to increase. 1025.3
equilibrium price and equilibrium quantity both to decrease. lOMoARcPSD|46342985
0.0 Which of the following events would unambiguously cause a decrease in the equilibrium price of cotton shirts?
0 an increase in the price of wool shirts and a decrease in the price of raw cotton
1 a decrease in the price of wool shirts and a decrease in the price of raw cotton
2 an increase in the price of wool shirts and an increase in the price of raw cotton
3 a decrease in the price of wool shirts and an increase in the price of raw cotton
II.There is one mistake in each of the following sentences. Find and correct them quality demanded 0
A movement upward and to the left along a given demand curve is called a decrease in demand. inferior 1
When Mario's income decreases, he buys more pasta. For Mario, pasta is a normal good. complement 2
Baseballs and baseball bats are substitute goods. different 3
A decrease in the price of a product and an increase in the number of buyers in the market
affect the demand curve in the same way. complement 5.
Most studies have found that tobacco and marijuana are substitutes left 6.
An increase in the price of ink will shift the supply curve for pens to the right 0
When a seller expects the price of its product to decrease in the future, the seller's supply right curve shifts left now. decrease8.
Price will rise to eliminate a surplus. increase 9.
A decrease in supply will cause an increase in price, which will cause a decrease in demanded. sel ers10.
The actions of buyers and governments naturally move markets toward equilibrium. Ā଀ĀȀĀ Ā ⸀ ЀĀȀȀ Ā
⸀ ᜀĀᜀĀᜀĀᜀĀᜀĀ଀ ଀ ᜀഀĀȀ Ā
⸀ ĀĀĀĀЀĀȀȀ⸀ĀᜀĀᜀĀᜀĀᜀĀᜀ0 Short Answer
Problem 1: Explain each of the following statements using supply-and-demand diagrams.
0 “When a cold snap hits Florida, the price of orange juice rises in supermarkets throughout the country.”
1 “When the weather turns warm in New England every summer, the price of hotel rooms
in Caribbean resorts plummets.”
2 “When a war breaks out in the Middle East, the price of gasoline rises, and the price of a used Cadillac falls.”
Problem 2: The following table gives the daily supply and demand for hot dogs at a sporting event: Price, $ Quantity demanded Quantity supplied 2.1 800 7200 1.8 1,600 4,800 1.6 2,400 2,400 1.4 3,200 800 1.2 4,100 200 lOMoARcPSD|46342985 0
What is the equilibrium price of hot dog? What make you think so?
0.0 If the organizers of the sporting event decide to set the price at $1.8, how many hot dogs will be sold?
0.1 The statement “In economics, normal good is the name for a good which a normal individual
can afford” is True or False? Explain 0
What is the law of demand? Over the last two decades, tuition fees at Purdue University have
increased by 50%. At the same time, the number of students enrolled has increased from 22,000
to over 35,000. Does this example demonstrate that the Law of Demand is false? Explain why or why not. Use graphs. Problem 3
Consider the market for backpacks at Hunter College. Suppose the supplycurve is:QS=
2P And the demand curve is:QD= 100 - 3P
Draw the supply and demand curves on a graph.
Solve for the equilibrium price and quantity.
Suppose there is a rise in the student population at Hunter, and thedemand for backpacks changes to:
QD= 200 - 3P. Draw the new demand curve on your original graph.
Suppose the price is still at the previous equilibrium level. Then, willthere be a shortage or a
surplus? How big will the shortage or surplus be?
Solve for the new equilibrium price and quantity. Problem 4
Consider the market for apple juice. In this market, the supply curve is given by QS = 10PJ − 5PA and
the demand curve is given by QD = 100 − 15PJ + 10PT , where J denotes apple juice, A denotes apples, and T denotes tea.
0 Assume that PA is fixed at $1 and PT = 5. Calculate the equilibrium price and quantity in the apple juice market.
1 Suppose that a poor harvest season raises the price of apples to PA = 2. Find the new equilibrium
price and quantity of apple juice. Draw a graph to illustrate your answer.
2 Suppose PA = 1 but the price of tea drops to PT = 3. Find the new equilibrium price and quantity of apple juice. (d) lOMoARcPSD|46342985 TUTORIAL 3: ELASTICITY
Coverage: Chapter 5 0 Multiple Choice
Identify the choice that best completes the statement or answers the question. Table 5-2
The following table shows a portion of the demand schedule for a particular good at various levels of income. Quantity Demanded Quantity Demanded Quantity Demanded Price (Income = $5,000) (Income = $7,500) (Income = $10,000) $24 2 3 4 $20 4 6 8 $16 6 9 12 $12 8 12 16 $8 10 15 20 $4 12 18 24
1. Refer to Table 5-2. Using the midpoint method, when income equals $5,000, what is the price
elasticity of demand between $8 and $12? (10-8)/[(10+8):2] / (8-12)/[(8+12):2] 0.56 0.75 1.33 1.80
0 For which of the following goods is demand probably most inelastic? 0 Camcorders 1 Insulin 2 Apples 3
devices that remove cores from apples
1 Demand is said to be inelastic if 0
buyers respond substantially to changes in the price of the good. 1
demand shifts only slightly when the price of the good changes. 2
the quantity demanded changes only slightly when the price of the good changes. 3
the price of the good responds only slightly to changes in demand.
2 If demand is price inelastic, then 0
buyers do not respond much to a change in price. 1
buyers respond substantially to a change in price, but the response is very slow. 2
buyers do not alter their quantities demanded much in response to advertising, fads, or general changes in tastes. 3 the demand curve is very flat.