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Al Ain University of science and technology

College of Business

Principles of Microeconomics

First Semester 2018-2019

Individual Assignment

By:

Hasna Alameri ID #201720736

Submitted to: Dr. Tahira Yasmin

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Question 1: A survey indicated that chocolate is Americans’ favorite ice cream flavor. For each
of the following situation, indicate the possible effects on demand, supply, or both as well as
equilibrium price and quantity of chocolate ice cream. In particular, you need to draw both
demand and supply diagrams for each of the following questions: a, b, c, & d to explain the
effects on equilibrium price and quantity.

a. A severe drought in the Midwest causes dairy farmers to reduce the number of milk-
producing cattle in their herds by a third. These dairy farmers supply cream that is used to
manufacture chocolate ice cream.

This affects leftward shift of the supply curve for

chocolate ice cream which results to reduce the
quantity supplied and increase n the price.

The reasons s because the cream is one of the

production items when they become rare the farmers
will boost the price which raises the cost which
decreases the supply and increases the price.

b. A new report by the American Medical Association reveals that chocolate does, in fact,
have significant health benefits.

Since the preferences change, people will demand more

chocolate ice cream cause of the study and cause price and
quantity to go up.

c. The discovery of cheaper synthetic vanilla flavoring lowers the price of vanilla ice cream.
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The vanilla ice cream is considered as a substitute so

people will shift their consumption from chocolate ice
cream to vanilla so the chocolate ice cream will have less
demand so less quantity and the price will fall.

d. New technology for mixing and freezing ice cream lowers manufacturers’ costs of
producing chocolate ice cream.

When the cost decrease, they will supply more so This is

represented by a rightward shift of the supply curve and
results in a fall in the equilibrium price and a rise in the
equilibrium quantity.

Question 2: Aaron Hank is a star hitter for the Bay City baseball team. He is close to breaking
the major league record for home runs hit during one season, and it is widely anticipated that in
the next game he will break that record. As a result, tickets for the team's next game have been a
hot commodity. But today it is announced that, due to a knee injury, he will not, in fact, play in
the team's next game. Assume that season ticket-holders are able to resell their tickets if they
wish. Use supply and demand diagrams to explain the following.

a. Show the case in which this announcement results in a lower equilibrium price and a
lower equilibrium quantity than before the announcement. Use demand and supply
diagrams to explain.

As you can see in the graph, this

results in a decrease in equilibrium
price and a rise in equilibrium quantity
but the leftward shift of the demand
curve is more than the rightward shift
of the supply curve.
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Because fewer fans want to attend the next game after the news sp the demand curve will
shift and because the demand falls, people with season ticket will sell so the supply curve
will shift.

b. Show the case in which this announcement could result in a lower equilibrium price and
a higher equilibrium quantity than before the announcement. Use demand and supply
diagrams to explain.

This is the the supply curve exceeds the leftward

shift of the demand curve so equilibrium quantity
rises.

c. Answer under what situation either case (a) or case (b) would occur?

 Case a when equilibrium quantity decrease happen when the decrease in demand
exceeds the increase in supply.
 Case b when equilibrium quantity increases happen when the increase in supply
exceeds the decrease in demand.
d. Suppose that a scalper had secretly learned before the announcement that Aaron Hank
would not play in the next game. What actions do you think he (scalper) would take?

He will try his best to sell the tickets he has and to lower the price because he knows
when the announcement is made there will less demand o tickets and prices will fall
dramatically so the expectation that the price will be lower in the future causes supply to
increase today.

Question 3: By using demand and supply diagrams, illustrate how each of the following events
affects the equilibrium price and quantity of pizza. Explain.
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a. The price of mozzarella cheese rises.

As shown in the graph, there will be and leftward shift of

the supply curve and the equilibrium price of pizza will
rise and the equilibrium quantity will fall.
Because Mozzarella is input production of PIZZA
production as so when the cost increase the quantity
supplied will reduce.

b. The health hazards of hamburgers are widely

publicized.

As shown in the graph this result is a rightward shift of the

demand curve and rise in the equilibrium price and quantity.
Hamburger is a substitute for PIZZA so when hamburger is
not preferred demand for pizza will increase and consumers
will prefer Pizza

c. The price of tomato sauce falls.

As shown in the graph, this result in a rightward shift of the

supply curve, equilibrium quantity will increase

Because Tomato sauce is input production of PIZZA

production as so when the cost decrease the quantity
supplied will increase.

d. The incomes of consumers rise and pizza is an inferior

good.

Inferior good an income relationship is contradictory so when

the incomes increase The demand for an inferior good
decrease. So an increase in customer incomes affects a
leftward shift of the demand curve, so lower equilibrium price
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and quantity.

e. Consumers expect the price of pizza to fall next week.

As the graph represent, this result the demand curve

shifts leftward so decrease in equilibrium price and
quantity because customers will eat next weak when the
price decrease.

Question 4: In an analysis of the market for paint, an economist discovers the facts listed below.
State whether each of these changes will affect supply or demand, and in what direction.

a. There have recently been some important cost-saving inventions in the technology for
making paint.
improved technology decrease the cost of production so the supply of paint goes up. The
supply curve would shift downward
b. Paint is lasting longer, so that property owners need not repaint as often.
better quality paint would raise the demand for paint. The demand curve would shift to
the right.
c. Because of severe hailstorms, many people need to repaint now.
The demand for paint would rise because of the storms so people will need more paint.
The demand curve would shift to the right
d. The hailstorms damaged several factories that make paint, forcing them to close down for
several months.
The supply curve would shift to the left because when they shut down the factories they
will supply less so there will be a shortage so when they want to rebuild the factory it will
increase the cost of production so they will increase the price of paint.
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Question 5: Many changes are affecting the market for oil. Predict how each of the following
events will affect the equilibrium price and quantity in the market for oil. Use the supply and
demand framework for each case below to answer the questions.

a. Cars are becoming more fuel efficient, and therefore get more miles to the gallon.
This causes a leftward shift in the demand for gasoline and thus oil because when they
need less fuel because of efficiency the demand will decrease so the demand curve is will
shift down the supply curve, the equilibrium price, and quantity decrease.

b. The winter is exceptionally cold.

This result is a rightward shift in the demand for oil so the demand curve is will shift up
the supply curve, the equilibrium price, and quantity increase because cold weather
makes the consumers order more oil for heaters and such.

c. A major discovery of new oil is made off the coast of Norway.

Discovery of new oil will make oil more abundant. So rightward shift in the supply
curve, result in a fall in the equilibrium price an increase in the equilibrium quantity.

d. The economies of some major oil-using nations, like Japan, slow down.
This case causes a leftward shift in demand for oil, the equilibrium price and quantity of
oil will decrease because economy slows down, there will be less output, therefore, less
input includes energy so a decrease in demand for energy will be reflected as a decrease
in the demand for oil.

e. A war in the Middle East disrupts oil-pumping schedules.

. Disruption of oil pumping will reduce the supply of oil. This leftward shift in the supply
curve will show a movement up the demand curve, resulting in an increase in the
equilibrium price of oil and a decrease in the equilibrium quantity.

f. Landlords install additional insulation in buildings.

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Insulation means fewer needs for heating which means less need of oil so the leftward
shift in the demand for oil, therefore, decreases in the equilibrium price and quantity of
oil.

g. The price of solar energy falls dramatically.

This result in a leftward shift in the demand curve and equilibrium price and quantity for
oil will decrease that happens because Solar energy is a substitute for oil-based energy
when it’s price decrease people will shift for using it.

h. Chemical companies invent a new, popular kind of plastic made from oil.
Due to new plastic demand which included oil results in increasing demand for oil
respectively results in a rightward shift in demand, increase the equilibrium price and
quantity of oil.

Question 6: Consider the demand for hamburgers. If the price of a substitute good (for example,
hot dogs) increases and the price of a complement good (for example, hamburger buns)
increases, can you tell for sure what will happen to the demand for hamburgers? Why or why
not? Illustrate your answer with a graph.

a. How do you explain the demographics of an aging population of "Baby Boomers" in the
United States will affect the demand for milk? Justify your answer.
The segment of society who are the demographics of population in the median age so
when they increase milk demand decrease, basically who use milk are the children and
the newborns segment of society, baby boomers increase while there is a low birth rate
and such so the demand for milk will decrease because this segment doesn’t demand milk
that much.
This result the demand curve will shift to the left and the equilibrium price will decrease,
so suppliers will respond by increasing the prices to have more profit from less quantity
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b. We know that a change in the price of a product causes a movement along the demand
curve. Suppose consumers believe that prices will be rising in the future. How will that
affect the demand for the product at present? Can you show this graphically?

The graph shows the reasons why demand curve shift to the right and one of them is
future expectations, it happens because when people expect the price to go higher, they
buy now when it's a lower price and vise virsa, when they expect it to go down they don’t
buy until later.