ASMPH YL6 Economics for Managers (Alikpala)

Problem Set 1

July August 2016

Due on or before SATURDAY, 30 JULY 2016, 1PM

1) A tariff is a tax that is levied on imported goods upon entry into a territory. This means that the domestic selling
price of that good will be higher than international prices. The figure below describes the world and the domestic
markets for oranges. Refer to the information provided in the figure to answer the questions that follow.

a)
b)
c)
d)

At the world price of 30 cents per orange, RP imports ________ million oranges per day.
RP will import 2 million oranges per day if a per-orange tariff of ________ is levied on imported oranges.
RP will import 6 million oranges per day if a per- orange tariff of ________ is levied on imported oranges.
Assume that initially there is free trade. The price of oranges from RP will increase to 40 cents per orange if a
________ per orange tax is imposed.
e) Assume that initially there is free trade. The quantity demanded of oranges will be reduced by 2 million per
day if RP imposes a tax of ________ per orange.

2) Refer to the information provided in the figure below to answer the questions that follow.

a) What price would be a good example of price ceiling? Defend your answer.
b) What price would be a good example of price floor? Defend your answer.
c) At what price control level would rationing have to be conducted?

3) (7 points) Refer to the information provided in the figure below to answer the questions that follow. Equilibrium
in this market occurs at the intersection of curves S and D.

a) What does the area of [A + B + C] represent?

b)
c)
d)
e)
f)
g)

What does the area of [E + F + G] represent?

Consumer surplus is area [A + B + E] if price is ___.
Producer surplus is area G if price is ___.
The deadweight loss due to under production is area [C + F] if price is _____.
Producer surplus changes by the area [E + F] if price goes from equilibrium to _____.
Consumer surplus changes by the area [E - C] if price goes from equilibrium to _____.

4) The market for pizza has the following demand and supply schedules:
Price / Pizza
Quantity Demanded
Quantity Supplied
$4
135
26
5
104
53
6
81
81
7
68
98
8
53
110
9
39
121
a) (6 pts) Graph the demand and supply curves. What is the market equilibrium?
b) (3 points) If the actual price in this market were above the equilibrium price, what would drive the market
toward equilibrium?
c) (3 points) If the actual price in this market were below the equilibrium price, what would drive the market
toward equilibrium?
5) (5 points) Refer to the information provided in the figure below
to answer the questions that follow. For all calculations, use the
midpoint formula of elasticity.
a) What is the price elasticity of demand if the price of a
hamburger is increased from $8 to $10?
b) What is the price elasticity of demand if the price of a
hamburger is increased from $6 to $8?
c) What is the price elasticity of demand if the price of a
hamburger is increased from $2 to $4?
d) At Point C the price elasticity is -1. What is the price
elasticity along the line segment EC?
e) At Point C the price elasticity of demand is -1. What is the
price elasticity along the line segment AB?

6) (5 points) Restaurants these days offer kids-eat-free promos almost every day. Using concepts already discussed in
class, explain the economic rationale behind such promos.
7)

(5 points) A special case of supply elasticity allows demand completely determine equilibrium price. What is this
special case? Cite one real-life example.

8) (5 points) The recent availability of satellite television has reduced the price of cable television subscriptions.
Based on this statement, what may be concluded about price, cross-price, or income elasticity of demand?
9) Complete the table below.
Pairs of
TVC
Earrings
0
1
2
3
4
5

20

MC

AVC

10

TFC

AFC
30

20

TC

110
180

ATC