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Tutorial Sheet 30000

The document is a tutorial sheet for an Introduction to Microeconomics course at Mulungushi University, focusing on various economic concepts such as demand and supply functions, market equilibrium, consumer and producer surplus, and the effects of taxes. It includes multiple questions requiring the application of these concepts to specific scenarios involving markets for oranges, ice cream, bread, and paw paws. Additionally, it addresses theoretical aspects like the law of demand and the impact of income changes on equilibrium prices.

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isaacngx
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3 views

Tutorial Sheet 30000

The document is a tutorial sheet for an Introduction to Microeconomics course at Mulungushi University, focusing on various economic concepts such as demand and supply functions, market equilibrium, consumer and producer surplus, and the effects of taxes. It includes multiple questions requiring the application of these concepts to specific scenarios involving markets for oranges, ice cream, bread, and paw paws. Additionally, it addresses theoretical aspects like the law of demand and the impact of income changes on equilibrium prices.

Uploaded by

isaacngx
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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MULUNGUSHI UNIVERSITY

INTRODUCTION TO MICROECONOMICS (SSE 121)


TUTORIAL SHEET 3 2023

Question One

A market for oranges is assumed to be made up of three consumers (Allan, Jericho


and Ketty). Each consumer has a unique demand function for oranges as presented
below.

𝑃 = −2𝑄 + 50 ……………..Allan’s demand function

𝑃 = −0.5𝑄 + 25 …………..Jericho’s demand function

𝑃 = −0.25𝑄 + 12.5 ……....Ketty’s demand function

Where P is the price of oranges (ZMW) and Q is the quantity demanded of oranges.

A. Sketch the market demand curve for each consumer on the market for oranges.
B. Generate the market demand function for oranges.
C. Sketch the market demand function on a well labelled graph.
D. Suppose also that the market supply function for oranges is 𝑃 = 2𝑄 − 20.
i. Determine the market equilibrium price and equilibrium quantity for oranges.
ii. Determine the consumer surplus at the equilibrium price.
iii. Determine the producer surplus at the equilibrium price.
E. Graphically show the market for oranges, clearly showing the equilibrium price,
equilibrium quantity, consumer surplus and producer surplus.

Question Two

Use a supply and demand diagram for a specified competitive market to demonstrate
the effect of the specific shocks given in the cases below on the equilibrium price and
quantity. Clearly explain the key adjustments in demand and supply curves that result.
Show whether there is a shift in the demand curve, the supply curve or neither.

A. An abrupt heat wave smashes the city of Kabwe. Show the effect in the ice cream
market in Kabwe.
B. Authorities impose a tax on ice cream to be paid by producers. How does this
affect ice cream market?
C. We are told that Kenya and Madagascar are major producers of cotton.
Madagascar workers decide to go on strike. Show the effect on the market for
Madagascar cotton.
D. Illustrate the effect of the situation described in part c) on the market for Kenya
cotton.
E. In the command economy, the authorities impose a price cap on canned Fanta.
Show the effect in the canned Fanta market

Question Three

A. According to the law of demand, “ceteris paribus, as the price of a particular


commodity increases, the quantity demanded of that commodity reduces”.
i. What is the nature of the relationship between the price of a particular
commodity and the quantity of it demanded?
ii. State the four (4) ways in which the law of demand can be presented.

B. The table below shows the interactions between demand and supply in a market
for a commodity. Redraw the table in the order presented and complete it. [Note:
demand obeys the law of demand and supply obeys the law of supply]

Demand Supply Price Quantity Equilibrium


point
Increase Increase
Decrease Constant
Increase Ambiguous
Increase Constant
Decrease Ambiguous
Constant Increase
Increase Decrease Increase

Question Four

Suppose that a market for Bread is given by the following demand and supply
equations

𝑄𝑑 = 40 − 2𝑃

𝑄𝑠 = −4 + 𝑃

Where 𝑄𝑑 , 𝑄𝑑 , and P, are the quantity demanded (loaves), quantity supplied (loaves)
and Price for bread per loaf, respectively.

A. Determine the equilibrium price and quantity of bread.


B. On the same diagram, draw the demand and supply curve, clearly showing the
intercepts, equilibrium price and equilibrium quantity.
C. Calculate the consumer surplus, producer surplus and total surplus.
D. Suppose that the government introduces a fixed tax of ZMW5 per loaf of bread.
a) Calculate the new equilibrium price and quantity.
b) Find the new consumer surplus, producer surplus, total surplus, and the
deadweight loss?
c) What is the incidence of a tax?

Question Five

Suppose that a market for paw paws is given by the following demand and supply
equations.

𝑄𝑑 = 30 − 2𝑃

𝑄𝑠 = 𝑃

Where 𝑄𝑑 , 𝑄𝑑 , and P, are the quantity demanded, quantity supplied and unit price of
paw paws, respectively.

A. Determine the equilibrium price and quantity of paw paws.


B. On the same diagram, draw the demand and supply curve, clearly showing the
intercepts, equilibrium price and equilibrium quantity.
C. Calculate the consumer surplus, producer surplus and total surplus.
D. Suppose that the government introduces a fixed tax of ZMW4 per paw paw.
a) Calculate the new equilibrium price and quantity.
b) Find the new consumer surplus, producer surplus, total surplus, and the
deadweight loss?
c) Who bears the burden of a tax?

Question Six

A. How does the equilibrium price of a normal commodity change when income of its
buyers falls? Explain the chain effects.
B. In case of inferior goods, a rise in income of the buyers causes a fall in equilibrium
price of the commodity. Comment. Illustrate using a diagram
C. What is meant by excess demand and excess supply?
D. What will be the effect on equilibrium price and quantity of an increase in equal
proportion of demand and supply of a commodity?
E. What is the difference between price ceiling and price floor?
F. If market demand function is given as: 𝑄 = 25 − 2𝑃 and market supply as: 𝑄 =
3𝑃, then what will be the equilibrium price and equilibrium quantity?

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