Yangon University of Economics

Executive Master of Development Studies Programme (EMDevS)

16th Batch (2018-2019)
Principle of Microeconomics (EMDevS 111)
Assignment - IV

Name : Hnin Yee Hpwe

Roll No: EMDevS - 14
Date : 24th Sept 2018

Table-4
No Change in An increase in A decrease in
Supply Supply supply
No Change in P Same P Down P Up
Demand Q Same Q Up Q Down
An increase in P Up P ambiguous P Up
Demand Q Up Q Up Q Ambiguous
A decrease in P Down P Down P Ambiguous
Demand Q Down Q Ambiguous Q Down

a. No change in Supply, No change in Demand

P
S0 P Same
Q Same
P0

D0
Q0 Qty

b. No change in Supply, An increase in Demand

P1 P Up
Q Up

D1

Q1

c. No change in Supply, A decrease in Demand

P Down P1
Q Down Q1
D1

d. An increase in Supply, no change in Demand

P1
P Down > Q Up
Q1
S1
 e. An increase in Supply, an increase in Demand

P1 P ambiguous
Q1 Q Up
S1 Q Up > P
D1

f. An increase in Supply, a decrease in Demand

P1
Q1 P Down
S1 Q ambiguous
D1 P Down > Q

g. A decrease in Supply, no change in Demand

P1
P Up
Q1
Q Down
S1

h. A decrease in Supply, an increase in Demand

P1 P Up
Q1 Q ambiguous
S1 P Up > Q
D1

i. A decrease in Supply, a decrease in Demand

P1
P ambiguous
Q1
Q Down
S1
Q Down > P
D1

Multiple choice
1. B
2. B
3. D
4. A
5. D
6. C
Problems and application

1. Explain each of the following statements using supply-and-demand diagrams.

a. "When a cold snap hits Florida, the price of orange juice rises in supermarkets through-out the country."

P1
Q1 P Up
S1 Q Down

b. "When the weather turns warm in New England every summer, the price of hotel rooms in Caribbean resorts
plummets."

P1
P Down
Q1
Q Down
D1

c. "When a war breaks out in the Middle East, the price of gasoline rises, and the price of a used Cadillac falls."

P1
P Down
Q1
Q Down
S1

Cadillacs in the secondary market. As the supply of used Cadillacs increases, the price of used Cadillacs falls.

P1
P Down
Q1
Q Ambiguous
S1
D1
3. Consider the market for minivans. For each of the events listed here, identify which of the determinants of
demand or supply are affected. Also indicate whether demand or supply increases or decreases. Then draw a
diagram to show the effect on the price and quantity of minivans.
a. People decide to have more children.

P1
Q1
D1

1. No change in Supply.
2. Increase in Demand.
3. Price raise to P1.
4. Quantity raise to Q1.

b. A strike by steelworkers raises steel prices.

P1
Q1
S1

1. No change in Demand.
2. Decrease in supply.
3. Price raise to P1.
4. Quantity decrease to Q1.

c. Engineers develop new automated machinery for the production of minivans.

P1
Q1
S1

1. No change in Demand.
2. Increase in supply.
3. Price decrease to P1.
4. Quantity increase to Q1.
 d. The price of sport utility vehicles rises.

P1
Q1
D1

1. No change in Supply.
2. Increase in demand.
3. Price increase to P1.
4. Quantity increase to Q1.

e. A stock market crash lowers people’s wealth.

P1
Q1
D1

1. No change in Supply.
2. Decrease in demand.
3. Price decrease to P1.
4. Quantity decrease to Q1.

4. Consider the markets for DVD movies, TV screens, and tickets at movie theaters.

a. For each pair, identify whether they are complements or substitutes:

Sr Descriptions Answer
1 DVDs and TV screens Complement
2 DVDs and movie tickets Substitute
3 TV screens and movie tickets Substitute
 b. Suppose a technological advance reduces the cost of manufacturing TV screen. Draw a diagram to show that
happens in the market for TV screen.

P1
Q1
S1

1. No change in Demand.
2. Increase in supply.
3. Price decrease to P1.
4. Quantity increase to Q1.

c. Draw two more diagrams to show how the change in the market for TV screen effects the markets for DVDs and
movie tickets.
Due to TV screen and DVD are complement goods, DVD market will increase demand.

P1
Q1
D1

1. No change in Supply.
2. Increase in Demand.
3. Price increase to P1.
4. Quantity increase to Q1.

Due to TV screen and movie tickets are substitute goods, movie tickets market will decrease demand.

P1
Q1
D1

5. No change in Supply.
6. Decrease in Demand.
7. Price decrease to P1.
8. Quantity decrease to Q1.
7. Using supply and demand diagrams, show the effect of the following events on the market for sweatshirts.
a. A hurricane in South Carolina damages the cotton crop.

P1
Q1
S1

1. No change in Demand.
2. Decrease in Supply.
3. Price increase to P1.
4. Quantity decrease to Q1.

b. The price of leather jackets falls.

P1
Q1
D1

1. No change in Supply.
2. Decrease in Demand.
3. Price decrease to P1.
4. Quantity decrease to Q1.

c. All colleges require morning exercise in appropriate attire.

P1
Q1
D1

1. No change in Supply.
2. Increase in Demand.
3. Price increase to P1.
4. Quantity increase to Q1.
 d. New (more productive) knitting machines are invented.

P1
Q1
S1

5. No change in Demand.
6. Increase in supply.
7. Price decrease to P1.
8. Quantity increase to Q1.

8. The market for pizza has the following demand and supply schedules:
Price ($) Quantity Demand (Pizza) Quantity Supply (Pizza)
4 135 26
5 104 53
6 81 81
7 68 98
8 53 110
9 39 121

a) Graph the demand and supply curves. What is the equilibrium price and quantity in this market?
160
140
120
100
81
Price

80
60
40
20
0
4 5 6 7 8 9

Equilibrium price and quantity in this market are 81.

b) If the actual price in this market were above the equilibrium price, what would drive the market toward the
equilibrium?
If the actual price in the market is above equilibrium, the quantity supplied is greater than the quantity
demanded. The supplier must lower its cost in order to increase sales. This moves the price toward its
equilibrium price.

c) If the actual price in this market were below the equilibrium price, what would drive the market toward the
equilibrium?
If the actual price in the market is below equilibrium, the demand for a product is greater than the supply.
This situation allows the supplier to take advantage of the shortage by raising its prices.