Lê Thị Hà Anh EBBA 11.

2 group 10

Individual assignment: Topic 3

Bài nộp cá nhân:
Họ tên:Lê Thị Hà Anh
Lớp:EBBA 11.2
Nhóm 10

Exercise 1
When a restaurant charges 10$ per meal (per person) it found that Mr. and Mrs.
Binh, who are typical customers, dined out once a month, Ceteris Paribus.
When the restaurant, as a promotional device, introduced a voucher system
giving patrons two meals for the price of one, the Binh’s dined out three times a
month.
a. Calculate the elasticity of demand for this restaurant
b. Explain what impact the promotional vouchers had on the Binh’s monthly
expenditure on meals at this restaurant. Is the change in total expenditure
consistent with the value of demand you calculate?
a.
P1=20$ P2=10$
Q1=1 Q2=3
ΔQ
% ΔQ= Q 1 =2
ΔP 10
% ΔP= P 1 = 20 =0,5
The elasticity of demand for this restaurant:
%ΔQ 2
Epd = %Δ P = 0,5 =4 ( >1: elastic )
(Ignore the minus sign)
Lê Thị Hà Anh EBBA 11.2 group 10

b.
The promotional vouchers had impact on the Binh’s monthly expenditure on
meals at this restaurant.
Lê Thị Hà Anh EBBA 11.2 group 10

Exercise 2
2.1. College Enrollment and Apartment Prices
Consider a college town where the initial price of rental apartments is $400 and the
initial quantity is 1,000 apartments. The price elasticity of demand for apartments
is 1.0 and the price elasticity of suply of apartments is 0.5.
a. Use demand and supply curves to show the initial equilibrium, and label the
equilibrium point a.
b. Suppose that an increase in college enrollment is expected to increase the
demand for apartments in college town by 15 percent. Use your graph to
show the effects of the increase in demand on the apartments market. Label
the new equilibrium point b.
c. Predict the effect of the increase in demand on the equilibrium price of
apartments.

Solution:
P1 = 400$
Q1 = 1000
Ed=1
Es =0,5
a.Equilibrium is determined at the intersection of the demand and supply
curve.Equilibrium is at point a
Lê Thị Hà Anh EBBA 11.2 group 10

b. An increase in college enrollment is expected to increase the demand for

apartments in college town by 15 percent.So we have:
% change∈demand 15 %
% change in price = Es+ Ed
=
0,5+1
=10%
Price increases by 10% and new equilibirum price will be $440.(point b)
Lê Thị Hà Anh EBBA 11.2 group 10

c.
The demand for apartments in college town increase leads to the increase in
equilibrium price of apartment
Lê Thị Hà Anh EBBA 11.2 group 10

2.2 Regulations and Price of Housing

Suppose local building regulations increase the cost of building new houses,
decreasing supply by 12 percent. The initial price of new housing is $200,000, the
price elasticity of demand is 1.0, and the price elasticity of supply is 3.0. Predict
what is the effect of the regulations on the equilibrium price of new housing.
Illustrate your answer with a graph that shows the initial point (a) and the new
equilibrium (b).

Solution:
P1=$200000
Ed=1
Es =3

The price elasticity of supply for the housing is 3.0 and the price elasticity of
demand is 1.0.Local building regulations has increased the cost of building new
houses and thereby decreasing the supply of housing by 12 percent.The initial price
of new housing is $200,000
Thus,the change in the price will be :
% change∈suply −−12 %
% change in price =- Es+ Ed
=
1+3
=3%

That means if the supply decreases from the initial point by 12% then

the price of steel then is: $200,000 x (100% + 3%) = $206,000 . The equilibrium
price has also increased by 3% as shown in the graph below.
Lê Thị Hà Anh EBBA 11.2 group 10
Lê Thị Hà Anh EBBA 11.2 group 10

2.3 Import Restrictions and the Price of Steel

Suppose import restrictions on steel decrease the supply of steel by 24
percent. The initial price of steel is $100 per unit, the elasticity of demand is 0.7,
and the elasticity of supply is 2.3. Predict what is the effect of the import
restrictions on the equilibrium price of steel. Illustrate your answer with a graph
that shows the initial point (a) and the new equilibrium (b).
Solution:
Ed = 0,7
Es = 2,3
P1 =100$
The elasticity of demand is 0,7 and the elasticity of supply is 2.3 . Import
restrictions on steel decrease the supply of steel by 24 percent.
We also know that the combined effect of elasticity of supply and demand
on equilibrium price can be written as:
% change∈suply −24 %
% change in price =- Es+ Ed
=- 2,3+0,7 =8 %
Therefore the equilibrium price of steel increase by 8% That means if the
supply decreases from the initial point by 24% then the price of steel then is:
$100 x (100% + 8%) = $108. as shown in the graph below
Lê Thị Hà Anh EBBA 11.2 group 10