Micro Economies
Q.1. The market for pizza has the following demand and supply schedules:
a. Graph the demand and supply curves (2 points)
b. What is the equilibrium price and quantity in this market? (2 points)
b. If the actual price in this market were above the equilibrium price, what would drive the market toward the equilibrium? (2 points)
c. If the actual price in this market were below the equilibrium price, what would drive the market back toward the equilibrium? (2 points)
Q.2. Suppose the demand of a particular product is represented by the following linear demand function Demand for Product Y = 200 – 4P
Calculate the quantity demand at the market prices $10, $20, $30, $40, and $50. Construct a demand schedule in a table and plot the demand curve for this demand function. (4 points)
Q.3. Below are the equations for the demand and supply curves:
Demand curve: Qd=4200−2P
Supply curve: Qs=700 5P
Compute the equilibrium price? (4 points)
Please turn over
(Part 2)
Price Original Quantity Supplied Original Quantity Demanded New Quantity Demanded
$400 12,000 18,000 23,000
$500 15,000 15,000 19,000
$600 17,000 13,000 17,000
$700 19,000 11,000 15,000
$800 20,000 10,000 14,000
Questions below are based on the figure above:
1)What is the original equilibrium price and quantity? (2 points)
2)Effect of greater income or change in tastes shifts the demand curve for rental housing to the right? What does this imply? (2 points)
3)With change in demand what is the new equilibrium price and equilibrium quantity? (2 points)
4) Equilibrium at E1 is with or without the government intervention? (1point)
5) Govt. imposes a price ceiling to prevent the price from rising. Look in the graph and tell what is the price imposed by ceiling? (1point)
6) Since the price is not permitted to rise due to ceiling, the quantity supplied remains at what price? (1point)
7) How much is the excess demand or shortage resulting from ceiling? (1point)
8) Is the price ceiling shown in the graph above ‘binding’ or ‘non-binding’? Please explain why? (2 points)