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ADCP 309 Managerial Economic
Fall Semester 2008
Instructor: Prof. Michael O. Minor
Problem Set 1 Solution Set
(E-mail as MS Word attachment by 11:59 p.m. Sunday, December 21, 2008. Include the question before each of your answers.)
Part III. Demand Schedule
ð According to the table above, the market quantity of compact disks demanded at a price of $8 is 176.
ð Refer to the table above. The Market demand schedule is given by which quantities corresponding to $14, 12, 10, 8, and 6? 55, 97, 134, 176, 228
ð Refer to the table above. If Maria and Jorgen were the only consumers in the market, the market demand schedule would be given by what quantities corresponding to $14, 12, 10, 8, and 6? 35, 47, 64, 86, 118
ð The market demand curve, with price on the vertical axis and quantity on the horizontal axis is determined by what? Explain your answer. It is determined by adding individual demand curves in a horizontal direction. This makes sense because “the market” is comprised of “individuals.”
ð True or false: The market demand curve is determined by adding the individual demand curves in a vertical direction. Explain your answer. False, see the explanation for the preceding question.
Part IV. Supply Schedule
ð According to the table above, the market supply of bread is given by what quantities corresponding to $5, 4, 3, 2, and 1? 102, 84, 66, 48, 30
ð Refer to the table above. If Orobran decreased its bakers’ salaries, what would it do? It would increase its supply and the market supply would rise.
Part V. Market Equilibrium
Consider the market represented by the schedule in the table above. At a price of $2 per unit, which of the following is true? Explain your answer.
ð The quantity purchased is 1000 units.
Answer:
ð The quantity sold is 700 units
At a price of $2 the quantity demanded is 1000 units and the quantity supplied is 700 units.
ð There is a surplus of 300 units.
ð There will be a tendency for the price to decrease.
ð There is a surplus of 700 units.
Consider the market represented by the schedule in the table above. At equilibrium, which of the following true? Explain your answer.
ð The market price if $5 per unit.
ð There is a surplus of 900 units.
ð There is a shortage of 900 units.
Answer:
ð At a price of $3 per unit, 900 units are traded.
At a price of $3 the quantity demanded is 900 units and the quantity supplied is 900 units.
ð The market is $1 per unit and the quantity traded is 500 units.
Consider the market described by the schedule in the table above. Which of the following is true? Explain your answer.
ð The law of demand is violated.
ð The law of supply is violated.
ð There is no equilibrium.
Answer:
ð At $5 per unit, people will purchase 400 units.
At a price of $5 the quantity demanded is 400 units and the quantity supplied is 1300 units.
ð At $2 per unit, people will purchase 900 units
Consider the market described by the schedule in the table above. At a price of $5 per unit, which of the following is true? Explain your answer.
ð The quantity purchased is 1000 units.
ð The quantity traded is 1000 units.
Answer:
ð There is a surplus of 900 units.
At a price of $5 the quantity demanded is 400 units and the quantity supplied is 1300 units. The difference between demand and supply is 900 units. Since these units were produced but not consumed there is a surplus.
ð The quantity sold is 1800 units.
ð There is excess demand.
Part IV. Elasticity
A good will tend to have an inelastic demand if:
ð the good has many close substitutes.
ð the good is a luxury.
ð the market is defined very broadly.
ð the time horizon is long.
A perfectly elastic demand is represented graphically by a:
ð relatively steep demand curve.
ð relatively flat demand curve.
ð vertical demand curve.
ð horizontal demand curve.
What effect will an increase in the price have on Total Revenue, if demand is elastic?
ð Total Revenue will increase.
ð Total Revenue will decrease.
ð Total Revenue will first decrease and then increase.
ð Total Revenue will remain unchanged.
The price elasticity of demand tends to be more elastic:
ð at points further up and to the left along the demand curve.
ð at points further down and to the right along the demand curve.
ð when the demand curve becomes steeper.
ð when the demand curve is vertical.
If a firm needs to increase its Total Revenue, the firm should ______the price, if the demand for its product is ______.
ð drop, inelastic
ð raise, elastic
ð drop, elastic
ð drop, unit elastic
Suppose that a good has an income elasticity of demand of -2.0. This means that the good is:
ð normal.
ð inferior.
ð a substitute.
ð a complement.
Part V. Microeconomic Markets
List, describe, and give an example of each type of microeconomic market:
Perfect competition, Monopolistic Competition*, Oligopoly, Duopoly, Monopoly
*from www.prep101.com link
ADCP 309 Spring 2009.2/Minor