Date : 11/10/2017  
 
Du ratio n: 6 0 mi n

Mark: 3 0

N o. of pages in c lu din g co ver : 7

Model Answers Assessment 1

Semester: …Fall . 2016/2017 …….………

Faculty : Business Administration-Tripoli Branch

Department : Business Division/ program:

Course Name : Microeconomics Course Code: BECO201

Student's Name:…………………………….……………………….………...….……………… ID:……………………………….……….….…….….……………….

Section/ Group: ………………………...…..….…….….……………………….….…………… Seat Number: ……………………………………………..

INSTRUCTIONS:
1- Any kind of cheating will subject the student to the penalties specified by the University rules
2- Use of cell phone is strictly prohibited

Question Mark Out of

One 12 Total marks in letters
Two 6
Three 5
Four 7
Five
Six
Seven
Eight Examiner’s Name: Noma ZIADEH MIKATI
Nine Signature:…………………………….……………….……………….…..….…….
Ten
Total 30
Short Questions (12 points)
A) Suppose an individual inverse demand curve is given as P= 4 - Qi
Where Qi is the quantity demanded by individual i. there are 20 individual
consumers with this identical individual inverse demand curve. What is the
market demand curve? (1,5 point)
The individual demand function: Q=4-P

The market demand function: Qdmarket=20*Qindividual= 20 *(4-P)

Qdmarket=80-20P

B) What are the factors that may influence a household’s demand for a
specific product? (1,5 point)

The price of the product,

The price of substitute goods
Price of complementary goods
Income & wealth
Utility, taste, quality of the good
Expectation for future economic situation.
(1.5 points if student present at least 5 factors)

C) What are the factors that may influence producer’s supply for a specific
good? (1,5 point)

Price of the product,

Price of raw materials,
price of related products,
technology used to produce the product
(1.5 point if student present at least 4 factors)
D) Give an example of substitute goods (1 point)

Bicycles and cars

Bicyles and Public transport
Cars and Public transport
Cars and motorcycle
Tea and coffee
Meat and chicken ….
E) Give an example of complementary goods (1 point)

Cars and gasoline, sugar and coffee, computer and mouse, computer and
printer…

F) What is an inferior good? Give an example. How an increase in income

affects the demand for inferior goods. (1,5 point)

Inferior goods are goods that demand decrease when income increase.
Example : used clothes, low quality toys… an increase in income shift the
demand for inferior good to the left.
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G) What is the impact of an increase in the price of cars on each of the
following elements: (1 point)

The demand for cars: no change

The quantity demanded for cars: decrease
The supply of cars: no change
The quantity supplied of cars: increase

H) If you can download 10 ring tones for your cell phone for $20 or you
could download 21 ring tones for your cell phone for $20.25, then the
marginal cost of the 21st ring tone is (1 point)
0,25 $

I) If your tuition is $7,000 this semester, your books cost $2,000, you can
only work 10 rather than 40 hours per week during the 15 weeks you are
taking classes and you make $15 per hour. Suppose that these are all the
costs and benefits from the two choices
(a) Calculate your cost of attending college this semester. (1 point)
Cost=7000+2000=9000$

(Students who also calculate the net cost 9000-10*15*15=6750 also take the
full grade)

(b) Calculate your opportunity cost for attending college this semester
(1 point)
Cost of college=9000$
Income from work while studying=10*15*15=2250
Net cost of attending college= 6750
Value of working=40*15*15= +9000
Opportunity cost for attending college=loosing the opportunity to gain 9000
and loosing 6750= loosing 15750$

Exercise 1 (6 points)
Assume that each of the markets below is initially in equilibrium. Then for
each market below, suppose that the indicated event occurs. Illustrate the
initial equilibrium and the effect of each event in a diagram and indicate the
effects on the equilibrium price and quantity. (Provide small explanation for
each event)

a) In the market of DVD players, technological advancement enhances the

production of these items. (1,5 points)

technological advancement cause the supply to increase, so supply curve

shift to the right (0,5)

2
n The price of fertilizer decreases.
A decrease in the price of an input to production will increase the
Graph(0,5
supply point)
of corn. An increase in the supply of corn will decrease the
equilibrium price and increase the equilibrium quantity.

and quantity of instant ramen.

brid automobiles Technological advances reduce costs of producing high-quality

The quantity
hybrid cars andsupplied at equilibrium
there is an increase.
increase in fuel prices. And the price at equilibrium
n The price of fertilizer decreases.
decreases.(0,5advances
Technological point) reducing the cost of producing high-
A decrease
quality in the
hybrid carsprice of an input
will increase theto production
supply will
of these increase
cars. An the
increase in fuel prices will increase the demand for hybrid cars the
supply of corn. An increase in the supply of corn will decrease
equilibrium
(since fuel isprice and increase the
a complementary goodequilibrium
and hybridquantity.
cars require less of
it). The combined changes in supply and demand will result in an
increase in the equilibrium quantity of hybrid cars but the change
b)equilibrium
in In the market ofisiPhones:
price Due to free trade agreements, the components
indeterminate.
used to manufacture iPhones can be purchased more cheaply. There is also
an increase in average household incomes. (2 points)
The components used to manufacture iPhones can be purchased more
cheaply so The supply increases supply curve shift to the right.(0,5 point)
The quantity supplied at equilibrium increase. And the price at equilibrium
decreases. (P!  Q")  (0,25  point)  

brid automobiles The demand increases,

Technological advances reduce demand curve
costs shift to the
of producing right. .(0,5 point) The
high-quality
quantity demanded
hybrid cars and thereatis equilibrium
an increase inincrease. And the price at equilibrium
fuel prices.
increases. (P"  
Technological Q")  (0,25  
advances reducingpoint)  
the cost of producing high-
quality hybrid cars will increase the supply of these cars. An
The two inevents
increase will lead
fuel prices to increase
will increase in quantity
the demand at equilibrium
for hybrid cars and the price
(since fuel
in undeterminis a complementary good and hybrid cars require less of
it). The combined changes in supply and demand will result in an
increase(0,5
Graph in the equilibrium quantity of hybrid cars but the change
point)
in equilibrium price is indeterminate.

3
 that each of the markets below is initially in equilibrium. Then for each market below,
e that the indicated event occurs. Illustrate the effect of each event in a diagram and
the effects on the equilibrium price and quantity.
c) In the market for cars, the price of gasoline doubled. (1,5 points)
Market Event
nut butter Gasoline and
The price of cars
jelly are complementary goods. When price of gasoline
increases.
When thethe
increase price of jellyfor
demand increases, the quantity
cars decrease. demanded
Demand curve of jellyleft. (0,5
shift
decreases. Because peanut butter and jelly are complementary
point)The new equilibrium point has lower quantity and lower price. (0,5
goods, you will also want less peanut butter. Thus, the demand
point)
for peanut butter decreases. The decrease in demand for peanut
butter decreases the equilibrium price and quantity of peanut
Graph
butter. (0,5 point)

eat Midwest floods destroy 50% of the wheat crop.

The destruction of the wheat crop decreases the supply of wheat.
The decrease in the supply of wheat increases the equilibrium
price and decreases the equilibrium quantity of wheat.

d) In the market of pens the price of orange increase. (1point)

No change in the market of pens. (0,5 point)
Graph (0,5 point)

ant ramen A rise in average family incomes.

Since instant ramen is an inferior good, an increase in family
incomes will decrease the demand for instant ramen. The
decreased demand results in a decrease in the equilibrium price

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 Exercise 2 (3 points)
Exercise
!During2 a(5specific
points)week you are able to produce one of two products: T-
During a specific
shirts/and weekThe
dresses. youdifferent
are able quantities
to producethat
oneyou
of two
mayproducts: T- as
produce are
shirts/and
follow:dresses. The different quantities that you may produce are as
follow: T-shirts Dresses
T-shirts20 Dresses0
20 0
18 1
18 1
16 16 2 2
14 14 3 3
12 12 4 4
10 10 5 5
8 8 6 6
6 7
4
6 8
7
2 4 9 8
0 2 10 9
a) On a graph show the
0 different possible combinations of T-Shirts
10 and
Dresses that you may produce. (1 point)
a) On a graph show the different possible combinations of T-Shirts and
Dresses that you may produce. !(0,5 points)
Tshirts

20

10 Dresses
b) What is the name of this graph; give a definition. !
Production
b) What possibility
is the name of thisfrontier
graph; (PPF).
give a This curve  shows
definition. all the combination
(1 point)
of T-shirts
Production and dresses
possibility that (PPF).
frontier could be produced
This if we are
curve shows using
all the the resources
combination
in an efficient
of T-shirts way. that
and dresses (1 point)
could be produced if we are using the resources
in an efficient way. (1 point)
c) What could you say if you are producing 3 dresses and 10 T-shirts?
c) WhatThis is inefficient
could you saylevel
if youof are
production because
producing if weand
3 dresses are10using the resources
T-shirts?
efficiently we are able to produce 3 dresses and 14 T-shirts (0,5 point)
(1point)
This! is inefficient level of production because if we are using the resources
d) Assume
efficiently thatable
we are youtoareproduce
producing 10 T-shirts
3 dresses and 14and 5 dresses
T-shirts but you
(1 point)
really !need to produce 6 Dresses. What should you do in order to produce
this number
d) Assume of Dresses?
that you Deduce
are producing 10the opportunity
T-shirts cost of one
and 5 dresses dress.
but you !
really
needIntothis case I 6should
produce reduce
Dresses. What myshould
production
you doofinTshirts to produce
order to 8 insteadthis
of 10.
number of Dresses?
Accordingly Deduce the opportunity
the opportunity cost ofone
cost of producing onedress
dress.
is (22 T-shirts.
point)
In this case I should reduce my production of Tshirts to 8 instead of 10.
(1 point)
Accordingly the opportunity cost of producing one dress is 2 T-shirts.

5 6
Exercise 3 (4 points)
If theExercise (7 points)for corn is Qd=-P+10 and the supply function is
demand3function
Qs=5+pIf the demand function for corn is Qd=-P+10 and the supply function is Qs=5+p
1) What is the condition to achieve equilibrium in a market? What is the
1) Draw the demand
equilibrium price and supply
and the curves quantity
equilibrium for corn.inWhat is the equilibrium
this market? (1,5 point)
price?
AtWhat is the equilibrium
equilibrium quantity?5+P=-P+10 P=5/2 and Q=7,5
Qs=Qd accordingly

At equilibrium
2) Draw theQs=Qd
demandaccordingly 5+P=-P+10
and supply curves for corn.P=5/2 and Q=7,5
(1,5 point)

10 Qd Qs

5 10 Q

2) How much Corn will be demanded if P=0? If P=10? If P=12?

3) How much Corn will be demanded if P=0? If P=16? (1 point)
If P=0 Qd=10 d
If P=0 Q =10 (0,5point)
If P=10 Qd=0
If P=16 if price higher than 10 there is no demand Qd=0 when P=16
(0,5point)
If P=12 Qd=0
4) At the equilibrium price and quantity what is the revenue received by farmers?

P=2,5 and
3) Suppose the Q=7,5
government now impose a price floor (minimum price) at 3$
Farmers receive= 2,5*7,5=18,75$
per bushel. Show the effect of this program graphically. Are we in an
equilibrium condition? What do we call this situation?
5) Suppose the government now impose a price floor (minimum price) at 3$ per
We are not in
bushel. equilibrium.
What Price
is the quantity floor =3$>
demanded? price
What at equilibrium.
is the If P=10
quantity supplied? Are we in
an equilibrium condition? What do we call this situation? (1 point)
Quantity demanded < Quantity supplied
With price Floor: P=3$
We have Surplus
Qd=-3+10=7
Qs=5+3=8
4) With the price floor, how much do farmers receive from their corn?
Quantity
How much woulddemanded < Quantity
they have receivedsupplied
if there were no price floor?
WithWe
price Floor:
have P=3$
Surplus
d
Q =-3+10=7
Farmers receive: 3*7=21$
6) With the price floor, how much do farmers receive from their corn? (1 point)
Farmers
If there receive:
is no price 3*7=21$
floor: P=2,5 and Q=7,5
Farmers receive= 2,5*7,5=18,75$

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