AUM Microeconomics Assignment: Supply, Demand, and Elasticity Analysis

This document presents solutions to a microeconomics assignment, addressing various concepts such as market equilibrium, supply and demand analysis, and elasticity calculations. The assignment explores how different events impact equilibrium price and quantity in the minivan market and analyzes the market for pizza, determining equilibrium price, quantity, shortages, and surpluses. The document calculates price and income elasticity of demand using the midpoint method, determines whether goods are normal or inferior, and analyzes cross-price elasticity. Furthermore, the assignment includes questions on consumer and producer surplus, and cost-benefit analysis for decision-making in the public sector, using an example of pollution abatement. Finally, the assignment covers the market demand schedule for both private and public goods.

Running head: ECONOMICS 1
Microeconomics
Name
Student Number
Institution

ECONOMICS 2
Solutions
1. Consider the market for minivans. For each of the events listed here,
identify the effect on the equilibrium price and equilibrium quantity of
minivans (note: the answer should be increase, decrease, stay
the same, or indeterminate.).
Fill up the following answer sheet for Question 1: (note: the answer
should be increase, decrease, stay the same, or indeterminate.).
equilibrium price equilibrium
quantity
a. People decide to
have more
children.
.
Increase Increase
b. A strike by
steelworkers raises
steel prices.
Increase Decrease
c. Engineers
develop new
automated machinery
for the production of
minivans.
Decrease Increase
d. The price of
station wagons rises.
Increase Increase
a. A stock-market
crash lowers
people’s wealth
Decrease Decrease

ECONOMICS 3
2. The market for pizza has the following demand and supply schedules:
PRICE in $ QUANTITY
DEMANDED
QUANTITY
SUPPLIED
4 135 26
5 104 53
6 81 81
7 68 98
8 53 110
9 39 121
Question 2: Fill up the following answer sheet
a. What is the equilibrium
price in this market?
Equilibrium price is $6
b. What is the equilibrium
quantity in this market?
Equilibrium Demand is at $81
c. At price of $4 do you have
shortage or surplus?
There is a shortage since
Quantity demanded which is 135
is greater than quantity supplied
which is at 26. Shortage of 135-
26 =109
d. At price of $8 do you have
shortage or surplus?
There is a surplus since Quantity
demanded equals 53 is less than
quantity supplied which is at
110. Surplus of 110-53 =57
3. Now suppose that the hot weather and the food and drug
administration shut down many ice cream shops. These two events

ECONOMICS 4
occur at the same time. Analyze the effect of this combination of
events on (note: increase, decrease, stay the same, or
indeterminate.)
Fill up the following answer sheet
Question 3: (note: the answer should be increase, decrease, stay the
same, or indeterminate.).
a. What will happen to the
equilibrium price in this
market?
Increase
b. What will happen to the
equilibrium quantity in this
market?
Decrease
4. use the midpoint method (the one we used in the class) for calculating
price elasticity of demand between point A and point B:
Price Quantity demanded
Point A 4 120
Point B 6 80
Fill up the following answer sheet for Question 4
Elasticity
Calculate price elasticity of
demand between point A and
point B
Price elasticity of demand =
Percentage Change∈quantity demanded
Percentage change∈ Prce
Percentage change in Quantity
demanded =
QB−QA
QB +QA
2
∗100 %=¿
−40
100 ∗100 %=−40
Percentage change in Price

ECONOMICS 5
=
PB−PA
PB+ PA
2
∗100 %=¿ 2
5∗100 %=40
Price elasticity of demand =
Percentage Change∈quantity demanded
Percentage change∈ Prce
=−40
40
= -1
5. From the following table, Use the midpoint method (the one we used in
the class):
Income Quantity demanded
Point A 300 40
Point B 500 60
Fill up the following answer sheet for Question 5
a. Calculate income elasticity
of demand between point
A and point B
Income Elasticity =
Percentage Change∈quantity demanded
Percentage change∈income
Percentage change in Quantity
demanded =
QB−QA
QB +QA
2
∗100 %=¿
20
50 ∗100 %=40
Percentage change in income

ECONOMICS 6
=
Y B−Y A
Y B+Y A
2
∗100 %=¿ 200
400 ∗100 %=50
Price elasticity of demand =
Percentage Change∈quantity demanded
Percentage change ∈Income
= 40
50
= 0.8
b. Is the product normal or
inferior?
Since income elasticity of demand =0.8 is
positive, it shows that the production is
normal, also known as the superior goods
production. Increase in income will lead
to an increase in Quantity demanded
6. On the basis of the four individual demand schedules below, and
assuming these four people are the only ones in the society: determine
p Qd1 Qd2 Qd3 Qd4
8 0 1 0 0
7 0 2 0 1
6 0 3 1 2
5 1 4 2 3
4 2 5 3 4
3 3 6 4 5
2 4 7 5 6
1 5 8 6 7

ECONOMICS 7
a) Fill out the market demand schedule on the assumption that the
good is a private good
Answers: (a) Market demand schedule
Quantity
Demanded
Price
1 8
3 7
6 6
10 5
14 4
18 3
22 2
26 1
b) fill out the collective demand schedule on the assumption that the
good is a public good
Answer : (b) Collective demand schedule
Quanti
ty
Amount
Society is
Willing to Pay
1 8+6+7=21
2 7+5+6=18
3 6+4+5=15
4 5+3+4=12
5 4+2+3=9
6 3+1+2 =6
7 2+0+1=3
8 1+0+0 =1

ECONOMICS 8