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dr Adrian Solek, Department of Microeconomics, Cracow University of Economics

1. Analyze the graph below and fill in the blanks: D S P Q #

g) Hamburgers become more popular.
h) Scientific research proves that eating
beef can be hazardous.
i) Forage for cows gets more expensive.
j) Lower tariffs increase the inflow of
beef from abroad.
k) The price of pork falls.
l) Many butcheries go bankrupt.

a) If buyers want to purchase 2 units of the good, the highest

price they want to pay is $____ per unit.
b) At the price $16, buyers want to purchase ____ units. 1 2
c) The lowest price that would induce sellers to offer 4 units
of the good in the market equals $____ per unit.
d) At the price equal to $12 sellers offer ____ units.
e) At the price equal to $____ per unit the quantity demanded
of the good is equal to the quantity supplied, and at this
price ____ units are exchanged between buyers and sellers.
f) For the quantity equal to 8 units the highest price acceptable
for buyers is $____ and the lowest price acceptable for
sellers is $____.
3 4
g) At the price of $20, there is a _________ in this market; its
size is equal to _____ units. 4. The demand and supply functions for three goods have been
h) If the price is $12, there is a ________ equal to _____ units. estimated. Find the equilibrium price and quantity in each mar-
ket. What is the suppliers’ revenue from sales? How much will
2. Determine whether each of the following factors has a direct the buyers spend on the goods?
influence on demand or supply of a consumer good in the market: a) demand: Q = –2P + 40, supply: Q = 4P – 20;
a) the price of substitutes, e) the price of raw materials, b) demand: P = –0.1Q + 11, supply: P = 0.2Q + 2;
b) buyers’ tastes, f) buyers’ incomes, c) demand: P = 0.04Q2 – 3.2Q + 66,
c) the productivity of g) the technology of production, supply: P = 0.04Q2 + 0.8Q + 6, for 0 ≤ Q ≤ 40.
workers, h) the number of buyers,
d) the price of comple- i) the costs of production, 5. Suppose a severe drought hit the sugarcane crop. Predict
mentary goods, j) the number of sellers. how it would affect the equilibrium price and quantity on the mar-
kets of: sugarcane, sugar and honey. For the three markets
3. What will be the effect of the following events on the demand draw supply and demand curves to illustrate your answers.
for beef or the supply of beef in the national market? (a shift to What happened with: demand, supply, quantity demanded and
the left, right or no shift) Will the equilibrium price and quantity quantity supplied in the markets of the 3 goods? Indicate the
rise or fall? (Assume typical slopes of demand and supply curves). changes in the table below.
Indicate the number (#) of the graph corresponding to each event.
sugarcane sugar honey
effect on:
event #
D S P Q
a) More people become vegetarian.
b) Profits of butcheries decrease.
c) Strikes in butcheries.
d) Consumers expect the price of beef
to rise soon.
e) Inflation rate increases, causing real quantity quantity
good demand supply price
incomes of consumers to drop. demanded supplied
f) A new technology is implemented, sugarcane
allowing to produce beef in a lab, sugar
using stem cells, at a low cost. honey
6. Let’s assume coffee and tea are substitutes for consumers.
What happens in the markets of coffee and tea, when changes
of labour regulations in South America (such as an increase in
wages) raise the costs of production and decrease the crop of
coffee? Which curves, if any, shift: demand or supply? Is it a
change of demand, quantity demanded, supply or quantity sup-
plied? Draw demand and supply curves in the two markets.
before the changes after the changes
market of:
P Q P Q
coffee 20 50 30 30
tea 10 40 15 50
coffee tea
7. In summer people buy more apples and also spend more time
in holiday resorts than during winter. Why does the price of apples
fall in summer but the accommodation rates in the resorts go up?
8. Which of the following events might cause an increase in price
in the real estate market?
a) investments in the construction industry decreased,
b) it is easier to get a housing loan in a bank,
c) buyers expect the prices of houses will fall soon,
d) interest rates on housing loans in banks increase,
e) construction materials get more expensive.
9. The graph shows the milk market (quantity is measured in
thousands of litres daily, price – in złotys per litre).
price in zł/l
quantity in thousands of litres
a) In a free market the price of milk is ____ zł, the quantity
actually sold and bought is ____ thousand litres, and the
buyers’ expenditure on milk is ____ thousand zł.
b) The government introduced a price floor at 2.50 zł to pro-
tect the interests of ___________. At this price the quantity
demanded is ____ thousand litres, the quantity supplied is
____ thousand litres, and ____ thousand litres will actually
be sold.
c) The government buys excess milk that has not been pur-
chased by consumers. The size of the intervention storage
is ____ thousand litres and the government expenditure on
milk is ____ thousand zł.
d) If the price floor were 1.75 zł, _____ thousand litres would
be sold at the price of ____ zł. Would the intervention stor-
age be necessary in such a case? ______
10. The demand for wheat is: QD = –0.5P + 1200 and the supply:
QS = 2P – 300 (in tons).
a) Calculate the price of wheat in a free market and how many
tons will be purchased. P = _____, Q = _____
b) As incomes of farmers are considered insufficient, the gov-
ernment set a price floor for wheat equal to $700 in order
to support wheat producers. Find the quantity demanded
and the quantity supplied at this price: QD = _____, QS =
= _____. What will be the effect of such an intervention?
______________ Calculate its size: _____
c) Doctors published results of research saying that wheat
bread is very good for health. As a result the demand curve
shifted to the right and is given by: QD = –0.5P + 1700. Find
the new equilibrium point. P1 = _____, Q1 = _____
d) Is it necessary to maintain the price floor in the market
now? Explain. __________________________________
11. In a certain city the demand and supply curves in the market
of commercial space rental are: QD = –30P + 250,000 and
QS = 20P – 100,000, respectively (quantities in m2).
a) Find the equilibrium price and quantity.
b) The local authorities set a price ceiling of 6500 zł per 1 m2.
What will be the effect of such an intervention and how big
will it be?
c) In the long run the price ceiling will cause the supply to
change. Will it rise or fall and why?
d) The new supply curve is: Q = 20P – 110,000. What hap-
pens in the market now?
12. Predict effects of the following events in the market of private
universities and show them in graphs:
a) setting a price ceiling for tuition fees below the equilibrium
level,
b) increasing costs of employing professors,
c) reduction of income tax for students enrolled in private uni-
versities,
d) government subsidies for private universities.
a) b)
c) d)
© Adrian Solek