BHMH 2002 Introduction to Economics 2020-21

Topic 2: Demand, Supply and Market Equilibrium (Tutorials) Semester 2

Section A – D: Attempt before the tutorial meeting.

Your lecturer will assign parts/some questions of this tutorial exercise and/or the Sample Assignment I as
tutorial assignments to be submitted through Moodle. This submission is a required one and counts towards
your “Tutorial Exercise & Activities” mark. Details will be announced by your lecturer in the tutorial
meeting.

A. Demand and supply analysis (Mathematical Approach)

The following information reveals the market condition of SeaWorld, a theme park:
QD = 1000 – 3P, where QD is the quantity demanded and P is the ticket price of SeaWorld.
Qs = 600 + 2P, where Qs is the quantity supplied.
QD and Qs are expressed in term of thousand of tickets.

a) State the equilibrium condition.

Calculate the equilibrium price and equilibrium quantity for the market of SeaWorld. Showing your
workings.
Suggested solution: Remark:
Although mathematical approach is used for this
demand and supply analysis, it is a must that
students need to use appropriate economic
concepts to support their work. Otherwise, it is an
answer for a mathematic question and students
use the wrong approach to answer an economic
question. It is totally wrong that if no economic
concept is applied and used in any economic
question.

In this question, the economic concept of

‘equilibrium’ must be provided as the base of
student’s explanation.

Your explanation should be written in complete

sentences and short paragraphs. Abbreviation is
only accepted in workings or labels on any graph.

Mark will be deducted if:

- The equilibrium condition is not written in
complete sentence.
- The units of measurement such “$”,
“thousands tickets” are missing in the final
answer.
- The conclusion statement is missing.

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 BHMH 2002 Introduction to Economics 2020-21
Topic 2: Demand, Supply and Market Equilibrium (Tutorials) Semester 2
b) If the Ticket Sales Manager sets the ticket price of SeaWorld at $60,
i) Calculate the quantity demanded and quantity supplied of their theme park tickets. Show your workings.
Describe the market condition based on the data you obtained from your calculation.
ii) How to restore the equilibrium in the market of SeaWorld? Explain.

Suggested solution:

Remarks:
- Complete sentences and full spelling of words are needed for written explanation.
- Calculation steps are counted as explanation and workings are required.
- Extract of relevant data to support your explanation.
Mark will be deducted if:
- The equilibrium condition is not written in complete sentence.
- The units of measurement such “$”, “thousands tickets” are missing
- The conclusion statement is missing.

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BHMH 2002 Introduction to Economics 2020-21
Topic 2: Demand, Supply and Market Equilibrium (Tutorials) Semester 2

B. Multiple Choice Questions

1. Which of the following events illustrates the law of demand: Other things remaining the same, a rise
in the price of a good will ________ .
A. decrease the quantity demanded of that good
B. increase the demand for a substitute of that good
C. decrease the demand for the good
D. increase the demand for a complement of that good

2. In the market for jeans, which of the following events increases the demand for a pair of jeans?
A. rise in the wage rate paid to garment workers
B. rise in the price of a denim skirt (a substitute for jeans)
C. fall in the price of denim cloth
D. new technology, which reduces the time it takes to make a pair of jeans

3. Other things remaining the same, a fall in the price of peanuts will ________.
A. increase the supply of peanuts
B. decrease the supply of peanut butter
C. decrease the quantity supplied of peanuts
D. decrease the supply of peanuts

4. In the market for cell phones, which of the following events increases the supply of cell phones?
A. New technology lowers the cost of making a cell phone
B. Rise in the price of an e-book reader (a substitute in production)
C. An increase in people’s incomes
D. A rise in the wage rate paid to electronics workers

5. Many Americans are selling their used cars and buying new fuel-efficient hybrids. Assuming that
other things remaining the same, in the market for used cars, ________. Then, in the market of hybrids
________.
A. supply increases and the price falls; demand increases and the price rises
B. demand decreases and the price rises; supply increases and the price falls
C. both demand and supply decrease and the price might rise, fall, or not change; demand increases
and the price rises
D. demand decreases, supply increases, and the price falls; supply increases and the price falls

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BHMH 2002 Introduction to Economics 2020-21
Topic 2: Demand, Supply and Market Equilibrium (Tutorials) Semester 2

C. Simple practice for your reading skills (Demand & Supply Analysis)

Nowadays, drinking coffee becomes a lifestyle and becomes popular. Suppose that there is a bad harvest
of coffee bean. How would the market of coffee be affected? What happen to the equilibrium price and
equilibrium quantity of coffee? Explain your answer with a demand and supply diagram. (extract from the
past paper of CCN2002, Semester ONE 2013/14)

Work of student A (the part of written explanation):

The bad harvest of coffee bean leads to a drop of coffee bean. The supply curve of coffee
bean shifts to the left. The equilibrium price increases but the equilibrium quantity
decreases. The following diagram illustrates what happens in this market. … ….

Work of student B (the part of written explanation):

As coffee becomes popular, there is a favourable change in consumer preference. The

demand of coffee increases. Graphically, the demand curve of coffee shift rightwards.
Both the equilibrium price and quantity increase … ….

What are wrong with the answers of student A and B?

 Student A

 Student B

Guided questions Suggested Solution

• What is the key product of this question?

• What is the relevant information (changes in

the market) for identifying the factors
affecting demand and supply?

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BHMH 2002 Introduction to Economics 2020-21
Topic 2: Demand, Supply and Market Equilibrium (Tutorials) Semester 2

D. Economics Corner: Correction of Errors

When you write your explanation and suggestion solution in your assignments and examination paper,
make sure that your spelling and your choice of economic terms must be correct. Otherwise, NO mark
will be given for this part.
In this section, common errors made by previous students are provided. Correct the mistakes:

 ✓
(Write down the correct answers in the space
provided.)
(i) Car and gasoline are compliments.

(ii) The quantity demand of apple will increase.

(iii) The quantity transacted will increase when

the demand of a good increases.

(iv) Apple and orange are substutes.

(v) The demand for oranges shifts to the left.

(vi) As demand for apple increases, the demand

curve of apple shifts to the right. Both Pe and
Qe .

(vii) The following diagram is for the market of apple and it includes more than one mistake. Assuming
that this is an increase in supply of apple. Draw a correct diagram.

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