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Tutorial Chapter 1 and 2

The document consists of tutorial chapters focused on microeconomics, covering topics such as consumer behavior, trade-offs, and supply and demand principles. It includes questions and problems related to price indices, real prices, and equilibrium in markets. Chapters also explore the implications of price changes on demand and supply dynamics.

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4 views

Tutorial Chapter 1 and 2

The document consists of tutorial chapters focused on microeconomics, covering topics such as consumer behavior, trade-offs, and supply and demand principles. It includes questions and problems related to price indices, real prices, and equilibrium in markets. Chapters also explore the implications of price changes on demand and supply dynamics.

Uploaded by

sanfilippoaurora99
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Tutorial Chapter 1 and 2

Alessandra Testa∗
15 January 2020

Chapter 1 - Preliminaries
1. Microeconomics is the branch of economics that deals with which of the
following topics?
(a) the behavior of individual consumers
(b) unemplyment and interest rates
(c) the behavior of individual firms and investors
(d) B and C
(e) A and C
2. The problem of scarcity means that people face trade-offs. Which of the
following trade-offs are the concern of microeconomics?

(a) Trade-offs faced by consumers in the purchase of goods


(b) Trade-offs faced by workers between work and leisure
(c) Trade-offs faced by firms in what goods to produce
(d) all of the above
3. Firms face trade-offs in production, including decisions related to:

(a) which products to produce.


(b) how much of a particular product to produce.
(c) the best way to produce a given amount of output.
(d) all of the above

4. Suppose the price of crude oil is $95 per barrel in New York and $85 per
barrel in Texas, and the transaction costs for trading between the two
markets are $15 per barrel. What actions should you take to arbitrage
this price difference?
∗ [email protected]

1
(a) Buy oil in Texas and sell oil in New York
(b) Do not buy or sell oil in either market
(c) Sell oil in Texas and buy oil in New York
(d) Buy oil in both markets and wait for higher prices

5. For each city across the U.S., economists construct a price index for a
similar basket of goods. In Los Angeles the index is 127.3 and the index
for Dallas is 94.8. If you have been offered $137,000 for a job in Los
Angeles and $117,000 for a similar job in Dallas, which job affords you the
highest purchasing power of the bundle of goods in the price index? Use
the Los Angeles value as the base.

6. The following table shows the average retail price of butter and the Con-
sumer Price Index from 1980 to 2010, scaled so that the CPI = 100 in
1980.

1980 1990 2000 2010


CPI 100 158.56 208.98 218.06
Retail price of butter $1.88 $1.99 $2.52 $2.88

(a) Calculate the real price of butter in 1980 dollars. Has the real price
increased/decreased/stayed the same from 1980 to 2000? From 1980
to 2010?
(b) What is the percentage change in the real price (1980 dollars) from
1980 to 2000? From 1980 to 2010?
(c) Convert the CPI into 1999 = 100 and determine the real price of
butter in 1990 dollars.
(d) What is the percentage change in the real price (1990 dollars) from
1980 to 2000? Compare this with your answer in (b). What do you
notice? Explain.

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Chapter 2 - The basics of supply and demand
1. When the current price is above the market-clearing level we would expect:

(a) a shortage
(b) quantity supplied to exceed quantity demanded.
(c) greater production to occur during the next period.
(d) quantity demanded to exceed quantity supplied.

2. At the current price, the market of pens exhibits an excess of supply. The
following statement holds:

(a) Demand is higher than supply and price will increase.


(b) Demand is higher than supply and price will decrease.
(c) Demand is lower than supply and price will decline.
(d) Demand is lower than supply and price will increase.

3. Lucilla consumes one cappuccino irrespectively of the price:

(a) Lucilla exhibits a demand line which has zero elasticity.


(b) Lucilla exhibits a demand line which has infinite elasticity.
(c) Lucilla exhibits a demand line which has elasticity equal to one.
(d) None of the statements above is true.

4. If an increase in the price of one good leads to an increase in the quantity


demanded of another, the two goods are:

(a) substitutes
(b) complements
(c) independent
(d) unrelated

5. The inverse demand curve for product X is given by:

px = 25 − 0.005Q + 0.15py

where px represents tprice in dollars per unit, Q represents rate of sales


in punds per week, and py represents selling price of another product Y
in dollars per unit. The inverse supply curve of product X is given by:

px = 5 + 0.004Q

(a) Determine the equilibrium price and sales of X. Let py = $10.


(b) Determine whether X and Y are substitutes or complements.

3
6. The demand for tickets to the Daytona 500 NESCAR event is given by
equation QD = 350, 000 − 800P . The supply of tickets to the event is
given by the capacity of the Daytona track, which is 150, 000. What is
the equilibrium price of tickets to the event? What is the price elasticity
of demand at the equilibrium price? What is the price elasticity of supply
at the equilibrium price?

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