Demand, Supply, Market equilibrium
TRUE OR FALSE STATEMENTS
1. In a market in the state of oversupply the equilibrium will be established by an increase in the actual price.
2. After levying consumption tax on the product, the consumer surplus will increase.
3. If the consumption tax on a product increases, its price will increase. That’s why the supply will increase as well.
4. If the government subsidizes a product, the demand curve will shift to the right.
PROBLEMS / EXERCISES
2. To encourage the broader use of public transport the local government plans to subsidize the purchase of season tickets. It aims to increase the demand by 10 percent on constant prices. The equation of the demand curve for season tickets is: Q=120.000-20p, the equation of the supply curve of seasons tickets is: Q=30p-80.000.
a) Determine the price and the quantity of the season tickets sold as well as the sum of the subsidy needed to achieve this goal!
b) Determine the new curves of demand and supply!
c) Make a schedule of the market!
3, The equations of the demand and the supply curves in the market of potatoes are as follows: D=300-5p; S=10p-150.
a) Calculate the consumers’ surplus in case of market equilibrium!
b) The state maximises the prise of the potatoes in 25 HUF. Calculate the market equilibrium after this action!
c) Determine the sum the state would have to pay (in terms of subsidies for production) if the government to would like to give incentives for the producers to produce the demanded quantity of potatoes at the set maximal price!
d) Is the maximised price beneficial for the consumers, if the subsidy paid to the producers was financed from consumers’ tax payments?
4, The market of pumpkins can be characterised by the following curves: D=1500-5p, S=3p-500. After strong advertising (about the vitamin content of the product) the demand increased by 20 percent by constant prices.
a) Determine the new demand curve!
b) Calculate the consumers’ surplus at the original situation and after the demand has changed!
c) Illustrate the market of the product!
5, We know the inverse demand and supply curves in the market of potatoes:
P=300-1,5Q P=Q+50. The state decided to decrease the production by 40 percent with levying a tax.
a) Calculate the equilibrium price and quantity before levying the tax!
b) Show the changes in the potato market after introducing the tax and calculate the new price!
c) How large is the tax and how much revenue the government can raise by the introduction of this tax?
d) Illustrate the changes in a frame of reference!
6, The market demand of strip leaves is: Q=1500-20p, and the supply is: Q=30p-500. The state aims to decrease the quantity by 10 percent for the sake of health promotion that is why it levies a tax on production.
a) Determine the amount of tax necessary to decrease the consumption by 10 percent!
b) Determine the equations of the new demand and supply curves, if the demand reacts on the new supply!
c) Calculate the resulted change in the consumer surplus!
7, The market of skates can be characterised with the following curves: D=1500-20p and S=30p-500. To foster the sport activity of young people, the local government wants to increase the sold quantity by 10 percent.
a) How large support do the parents and the sellers require if the price doesn’t change?
b) Determine the new demand and supply curves!
c) Calculate the resulted change in the consumer surplus!
SOLUTIONS
2. a)p*=4.000; Q*=40.000; Q’=48.000
Consumer support: 32.000.000
Producer support: 12.800.000
b)D’=128.000-20p
3. a) Ft=2250
b) p=25; D=175; S=100; D>S excess demand
c) support 7,5 Ft/kg , altogether 1312,5 Ft
d) change in consumer surplus: DFt=812,5 Ft, support 1312,5, negative effect on consumers
4. a) p*=250; Q*=250, Q’=300; D’=1550-5p
b) Ft0=6.250; DFt=2.750
5. a) p*=150 and Q*=100
b) Q’=60; S’=p+150; p=210.
c) tax 100 Ft/kg, government revenue 6000 Ft
6. a) tax 5,9 Ft/unit
b) D doesn’t change; S’=30p-675
c) DFt=2327,5
7. a) p*=40; Q*=700; Q’=770; consumer support 2800; producer support 1771.
b) D’=1570-20p; S’=30p-430
c) DFt=2.572,5