Beirut Arab University

Faculty of Business Administration – Tripoli

Microeconomics – BECO201
Noma Ziadeh Mikati
Fall 2017/2018

-Practical exercises: Supply and Demand-

Objectives
Demand
1. The factors that impact the demand for a specific product
2. What is a demand curve
3. The difference between the change in quantity demanded (movement along a
demand curve) and changes in demand (shift of a demand curve)
4. Why most of the demand curves slope downward
5. How to derive market demand from individual demand curves

Supply
1. The factors that impact the supply for a specific product (Price of product,
Price of production, Price of related products)
2. What is a supply curve
3. The difference between the change in quantity supplied (movement along a
supply curve) and changes in demand (shift of a demand curve)
4. Why most of the supply curves slope upward
5. How to derive market supply from individual supply curves

Market Equilibrium
1. The condition to achieve market equilibrium
2. The condition to have Excess Demand (Shortage) or excess supply.
3. Shocking the equilibrium: The impact of a change in demand and/or supply on
market equilibrium.

Concepts

Factors of production Quantity demanded

Demand curve Quantity Supplied
Demand function Shift in demand curve
Inversed demand function Shift in supply curve
Supply curve Wealth
Supply function
Substitutes goods
Complementary goods
Inferior Goods
Normal Goods

Microeconomics  BECO201-­‐  BAU  Tripoli  Campus  –  Dr.  Noma  ZIADEH  MIKATI   1  

 
 I. Demand

Exercise 1 (Refer to page 58 in your book)

A) Suppose that the inverse demand function (rearranged so that price is a function
of quantity) for movies is P=120-Q1 for college students and P=120-2Q2 for other
town residents.
1. What is the town’s total demand function
2. Use a diagram to illustrate your answer

(Hint: To solve this problem you first need to rewrite the inverse demand functions as
demand functions)

Exercise 2 (Refer to page 58 in your book)

Suppose an individual inverse demand curve is given as P=2-1/2qi
Where qi is the quantity demanded by individual i. there are 50 individual consumers
with this identical individual inverse demand curve. What is the market demand
curve?

(Hint: To solve this problem you first need to rewrite the inverse demand functions as
demand functions)

Exercise 3 (Refer to page 58 in your book)

Assume the price of a movie is 10$. Jean demands 2 movies per week; Sam demands
3 movies per week and Line Demands 8 movies per week. What can you conclude
from this information?

(Hint: Try to calculate Qsam=…; Qline=…; Qjean=…)

Exercise 4 (Refer to page 50 in your book)

Your friend is arguing that the quantity of a good that consumers demand depends
only on the price of the good. Do you agree with him? Explain

Exercise 5: Multiple Choice Questions (Refer to page 50 in your book)

1) According to the law of demand, the demand curve for a good
1. Shift leftward when the price of the good increases
2. Shift rightward when the price of the good increases
3. Slope downward.
4. Slope upward

2) An increase in the price of computers will lead to

1. a movement up along the demand curve.
2. a movement down along the demand curve
3. a rightward shift of the demand curve
4. a leftward shift of the demand curve

Microeconomics  BECO201-­‐  BAU  Tripoli  Campus  –  Dr.  Noma  ZIADEH  MIKATI   2  

 
 3) An increase in consumers income lead to
a. a rightward shift of the demand curve for plasma TVs.
b. a movement up along the demand curve for plasma TVs
c. a rightward shift of the supply curve for plasma TVs
d. No change of the demand curve for plasma TVs

4) Consider the demand function Qd=150-2P, the effects of other determinants of

Qd are reflected in
a. The intercept of the function
b. The slope of the function
c. Neither the slope nor the intercept of the function
d. In both the slope and the intercept of the function

5) If the price of automobiles were to increase substantially, the demand curve

for gasoline would most likely:
a. shift leftward
b. shift rightward
c. remain unchanged
d. become steeper

6) If the price of automobiles were to decrease substantially, the demand curve

for automobiles would most likely
a. shift leftward
b. shift rightward
c. remain unchanged
d. become steeper

7) If the price of automobiles were to decrease substantially, the quantity

demanded for automobiles would most likely
a. shift leftward
b. shift rightward.
c. remain unchanged
d. become steeper

8) An increase in the demand curve for orange juice would be illustrated as a

a. leftward shift of the demand curve
b. rightward shift of the demand curve.
c. movement up along the demand curve
d. movement down along the deand curve

9) The term “inverse demand curve” refers to

a. a demand curve that slopes upward
b. expressing the demand curve in terms of price as a function of quantity
c. the demand for inverses
d. the difference between quantity demanded and supplied at each price

Microeconomics  BECO201-­‐  BAU  Tripoli  Campus  –  Dr.  Noma  ZIADEH  MIKATI   3  

 
 10) If the demand for orange is written as Q=100-5P than the inverse demand
function is
a. Q=5P-100
b. Q=20-0.2P
c. P=20-5Q
d. P=20-0.2Q

11) If a yet-to-be released video game receives a positive review in a popular

gaming magazine
a. The demand curve is expected to shift to the right
b. The demand curve is expected to shift to the left
c. No change in demand curve
d. For those who read the review demand shifts to the left, for those who
don’t read the review demand shift to the right

12) If on Tuesday the perceived price of studying for an exam is 4$ per hour but
on Saturday the perceived price of studying for an exam is 10$, the law of
demand predicts
a. More studying on Saturday and less on Tuesday
b. More studying on Tuesday and less on Saturday
c. The same amount of studying on Tuesday and Saturday
d. No studying on Tuesday or Saturday

13) Which of the following would not change the demand

a. The price of the product
b. Information about the product’s health effect
c. The income of the consumers
d. The price of related products

Exercise 6

a) The above figure shows a graph of the market for pizzas in a large town. No
pizzas will be demanded unless price is under …..
b) If the price fall from 10$ to 7$, the quantity of pizzas demanded will…….
By….

Microeconomics  BECO201-­‐  BAU  Tripoli  Campus  –  Dr.  Noma  ZIADEH  MIKATI   4  

 
Exercise 7
Suppose the market demand curve for pizza can be expressed as Qd=100-2P+3Pb
where Qd is the quantity of pizza demanded, P is the price of pizza and Pb is the price
of a burger.
a. What is the slope of this demand function and what information does the
slope provide
b. What is the relationship between burger and pizza from the point of view
of consumers?

Microeconomics  BECO201-­‐  BAU  Tripoli  Campus  –  Dr.  Noma  ZIADEH  MIKATI   5  

 
 II. Supply
Exercise 1 (Refer to page 65 in your book)
If the U.S. supply function of corn is Qa=10+10p. The supply function of the rest of
the world is Qr=5+20p
What is the world supply function?

Exercise 2 (Refer to page 65 in your book)

Suppose there are 100 identical firms in the rag industry, and each firm is willing to
supply 10 rags at any price. In this case what will be the quantity and the shape of the
market supply curve?

Exercise 3
Suppose the following information is known about a market:
. Sellers will not sell at all below a price of 2$
. At a price of 10$ any given seller will sell 10 units
. There are 100 identical sellers in the market.
Assuming a linear supply curve, use this information to derive the market supply
curve

Exercise 4 Multiple-choice questions

1) The expression increase in quantity supplied is illustrated graphically as a
a. Leftward shift in the supply curve
b. Rightward shift in the supply curve
c. Movement up along the supply curve
d. Movement down along the supply curve

2) if the supply curve of a product changes so that the sellers are now willing to sell 2
additional units at any given price the supply curve will
a. Shift leftward by 2 units
b. Shift rightward by 2 units
c. Shift vertically up by 2 units
d. Shift vertically down by 2 units

3) Technological innovation in the production of computers has led to

a. A decrease in the quantity demanded for computers
b. A rightward shift of the supply curve for computers
c. A decrease in the quantity supplied of computers
d. None of the above
4) if ethanol production is expected to increase the price of corn. U.S. farmers will
likely
a. Shift the supply of corn to the left
b. Shift the supply of corn to the right
c. Reduce the production of corn by sliding down the corn supply curve, all else
equal.
d. increase the production of corn by sliding up the corn supply curve, all else
equal.

Microeconomics  BECO201-­‐  BAU  Tripoli  Campus  –  Dr.  Noma  ZIADEH  MIKATI   6  

 
 III. Market equilibrium
Exercise 1 (refer to page 66)
If the demand function is Qd=110-20p and the supply function is Qs=20+10p
• What are the equilibrium quantity and price?
• Show these curves and the equilibrium point on a graph

Exercise 2 (refer to page 66)

Suppose the market for potatoes can be expressed as follows
Supply: Qs= -20+10p
Demand: DD= 400-20p
• What are the equilibrium quantity and Price?
• Show these curves and the equilibrium point on a graph

Exercise 3 (refer to page 66)

a) The above figure shows a graph of market for pizzas in a large town. What are
the equilibrium price and quantity?
b) At a price of 5$ there will be
a. Excess demand
b. Excess supply
c. Equilibrium
d. Zero demand
c) At a price of 14$, ther will be
a. No pizzas supplied
b. Equilibrium
c. Excess supply
d. Excess demand
d) At a price of 7$what is the amount of excess demand?
e) At a price of 10$, the market
a. Is not in equilibrium
b. Has excess supply
c. Does not have excess demand
d. All of the above

Microeconomics  BECO201-­‐  BAU  Tripoli  Campus  –  Dr.  Noma  ZIADEH  MIKATI   7  

 
Exercise 4 (refer to page 66)
Price per bushel Quantity demanded Quantity supplied
$0 6 0
$1 5 1
$2 4 2
$3 3 3
$4 2 4
$5 1 5
$6 0 6

1) Draw the demand and supply curves for corn. What is the equilibrium price? What
is the equilibrium quantity?
2) Suppose the government now impose a price floor (minimum price) at 4$ per
bushel. Show the effect of this program graphically. How large is the surplus of corn?
3) With the price floor, how much do farmers receive from their corn?
how much would they have receive if there were no price floor?
4) If the government buys all the surplus wheat, how much will it spend?

Microeconomics  BECO201-­‐  BAU  Tripoli  Campus  –  Dr.  Noma  ZIADEH  MIKATI   8  

 
 IV. Shocking the equilibrium

Exercise 1 (Refer to page 69 in your book)

A) Assume that each of the markets below is initially in equilibrium. Then for
each market below, suppose that the indicated event occurs. Illustrate the
effect of each event in a diagram and indicate the effects on the equilibrium
price and quantity.

Market Event

Wheat Midwest floods destroy 50% of the wheat

crop.

Corn The price of fertilizer decreases.

Generic food A rise in average family incomes.

Hybrid automobiles Technological advances reduce costs of

producing high-quality
hybrid cars and there is an increase in
fuel prices.

iPhones Due to free trade agreements, the

components used to manufacture iPhones
can be purchased more cheaply. There is
also a decrease in average household
incomes.

ink cartridges Technological advances permit to create

new types of printers that economize the
use of ink cartridges.

B) Explain the adjustment process in the wheat market after the shock to the new
equilibrium.

Exercise 2 (Refer to page 69 in your book)

What happens to the equilibrium price and quantity of coffee when there is a leftward
shift of the supply curve for tea? Explain
(Present the graph for tea market and coffee market, Hint tea and coffee are
substitutes)

Exercise 3 (Refer to page 69 in your book)

For each of the following scenarios, use a supply and demand diagram to illustrate
the effect of the given shock on the equilibrium price and quantity in the specified
competitive market. Explain whether there is a shift in the demand curve, the
supply curve, or neither.

Microeconomics  BECO201-­‐  BAU  Tripoli  Campus  –  Dr.  Noma  ZIADEH  MIKATI   9  

 
 a) An unexpected temporary heat wave hits Lebanon. Show the effect in the
ice cream market.

b) The government introduces a tax on ice cream, which is paid by producers.

What is the effect in the ice cream market?

c) China and Mexico are major producers of textiles. Workers in Mexico

decide to go on strike.
• Show the effect on the market for Mexican textiles.
• Show the effect of the situation described in (c) on the market for
Chinese textiles. The demand curve for Chinese textiles shifts to
the right. This results in a higher equilibrium price and higher
equilibrium quantity in the market for Chinese textiles.

d) Suppose the government imposes a price cap on bottled water. Show the
effect in the bottled water market.

Multiple questions
1) If pizza and tacos are substitutes, a decrease in the price of tacos would lead to a
a. Decrease in the demand curve for pizza
b. Decrease in the quantity demanded for pizza
c. Decrease in the price of pizza
d. All of the above

2) If oranges were found to cure cancer

a. The equilibrium price of apples would likely fall
b. The equilibrium price of oranges would likely increase in the near term
c. The equilibrium quantity of oranges would likely increase
d. All of the above

3) What can explain the fact that DVD players decreased in price during the 1990s
even as more DVD players were being sold
a. The demand for DVD was declining
b. The supply of DVD was decreasing
c. The supply of DVD players was increasing more than the demand for
DVD players
d. The demand for DVD players was increasing more than the supply of
DVD players

Exercise 5
Like personal computers, digital cameras have become a common household item.
Digital camera prices have plunged in the last 10 years. Use the model of demand and
supply to explain the fall in price and increase in quantity.

Exercise 6
During winter of 1997-1998 north United States experienced warmer than usual
conditions. The price of home heating oil was less than it was experienced during the
previous winter but people bought less home heating oil. This contradicts the law of
demand

Microeconomics  BECO201-­‐  BAU  Tripoli  Campus  –  Dr.  Noma  ZIADEH  MIKATI   10