Market Equilibrium Analysis & Exercises for Course | Microeconomics | Trường Đại học Quốc tế, Đại học Quốc gia Thành phố Hồ Chí Minh

EXERCISE 1
Demand and supply of fridge are shown in the table below : Price ($/unit) 100 120 140 160 180 200 Quantity Demanded 1000 900 800 700 600 500 (units) Quantity Supplied 300 400 500 600 700 800 ( units ) 250 S 200 A 150 100 rice ( $/unit) P 50 0 0 200 400 600 800 1000 1200
Quantity Demanded & Quantity Supplied QUANTITY SUPPLIED QUANTITY DEMANDED 1.
- Demand equation: Qd =f(P) => P = a-bQd At Qd=0 => a = 300 b = ΔP / ΔQd = 20/100 =0.2 P = 300 – 0.2xQ d
- Supply equation: Qs = f(P) => P = c+dQs At Qs = 0 => c = 40 d = ΔP / ΔQs = 20/100 =0.2 P = 40 + 0.2xQs
- The equilibrium price anf euilibrium quantity for fridge are indicated by the point A
Pe = 300 – 0.2Qd = 40 + 0,2Qs vs Qd = Qs = Qe Qe = 650 => Pe = $170 2.
- At the price of $200, the surplus of fridge is 800-500= 300 units
- At the price of $110, the shortage of fridge is 950-350= 600 units 3.
- Suppose the supply of fridge is constant, if price of electricity increase will cause
the demand for fridge to decrease because we need electricity to run a fridge (complementary goods)
- Given that quantity demanded for fridge change 300 units at each price level, a new curve will appear: 250 200 150 100 Price($/unit) 50 0 0 200 400 600 800 1000 1200 1400 Quantity(units) quantity demanded quantity supplied
quantity demanded plus 300 units
quantity demanded minus 300 units
+ If quantity demanded for fridge rises 300 units, the new Qd curve will shift to
the right: Pe= $200 & Qe= 800
+ If quantity demanded for fridge falls 300 units, the new Qd curve will shift to
the left: Qe=500 => Pe=$140 4.
Suppose government imposes a tax of $10 per one units of fridge sold, it will
cause a slight decline in fridge’s supply . The new S curve will shift to the left . 250 S 200 150 D 100 rice($/unit) P 50 0 0 200 400 600 800 1000 1200 Quantity(units) quantity demanded quantity supplied new quantity supplied P=c+dQs
Qs=0 => c=60, d=∆P/∆Qs=20/100=0,2 P=60+0,2Qs
Pe=60+0,2Qs=300-0,2Qd (Qe=Qd=Qs)
0,4Qe=240 => Qe=600 units => Pe= $180 5.
Suppose government supports for the sellers the amount of $10 per one units of
fridge sold, the quantity supplied for fridge will increase.The new S curve will shift to the right . 250 200 150 100 rice($/unit) P 50 0 0 200 400 600 800 1000 1200 Quantity(units) quantity demanded quantity supplied new quantity supplied P=c+dQs
Qs=0 => c=10, d=∆P/∆Qs=20/100=0,2 P=10+0,2Qs
Pe=10+0,2Qs=300-0,2Qd (Qe=Qs=Qd)
0,4Qe=290 => Qe=725 units => Pe=$155
EXERCISE 2 : With the aid of diagrams, show how each of the following events
affects the supply and/or demand curve for motorcycles. In each case, show and
state the effect on the equilibrium price and quantity.
1. An increase in Vietnamese personal income tax rates 700 600 500 400 300 rice($/u 200 P 100 0 0 100 200 300 400 500 600 700 800 900 Quantity(units) Quantity supplied Quantity demanded New quantity demanded
The demand for motorcycles will reduce as people earn less and still have other essential things to buy.
- The D curve will shift to the left
- The new quilibrium price & quanitty will lower than the old ones .
2. An increase in the price of steel 700 S 600 500 400 300 Price($/unit) 200 100 0 0 100 200 300 400 500 600 700 800 900 Quantity(units) Quantity supplied New quantity supplied Quantity demanded
The supply for motorcycles will fall because the higher price of input resource
makes manufacturers use less to remain their total cost . As a result , fewer motorcycles will be produced
- The S curve will move to the left
- The new euilibrium & quantity will be higher compared to the old ones .
3. An improvement in technology in motor vehicle production at the same
time as a recession hits the Vietnamese economy. 700 S 600 500 400 300 PRICE($/UNIT) 200 100 0 0 100 200 300 400 500 600 700 800 900 QUANTITY(UNITS) Quantity supplied New quantity supplied Quantity demanded New quantity demanded
With the innovative technology in motor vehicle production helps the supply of
motor vehicle production increase so the price will fall
- The S curve will shift to the right
At the same time , Vietnamese economy experience a recession which make the
demand for motor vehicle fall and the price will continue to drop further.
- The D curve will shift to the left
Effect of this double event will cause the equilibrium price and quantity
lower and the point indicates this new equilibrium price and quantity
will be shifted to the right of the old ones.