Microeconomics

Full name: Doan Xuan Nhi

Ex1:
a. Because of the effect of Hurricane Katrina had on New orleans, about
250,000 residents had to relocated to nearby Baton Rouge. In other words,
the demand for housing in Baton Rouge had increased whereas the
quantity of houses in that city was limited. This led to the scarcity in the
supply of houses, which pushed houses rise up (from $130,000 to
$156,000).
This graph below illustrates the effects of Hurricane Katrina on the damand
for housing in Baton Rouge and the price and quantity of housing there.

House prices ($)

Supply

$156,000

Demand after Katrina

$130,000

Initial demand

Q1 Q2 Number of home-seeker

b. Half of the people who had relocated to Baton Rouge moved back to rebuilt
New Orleans means that the demand for house decreases. This led to an
excess supply, which caused the demand curve shift to the left and lowered
market price to meet equilibrium.
House prices ($)
Supply

$A

Initial demand

$B

Demand after relocation

Q1 Q2 Number of home-seeker

Ex2:
The decrease in bee population brings about the decline in pollination and in
turns reducing the supply of strawberries, raspberries… The shortage in supply of
ingredients for ice cream has caused the supply curve to shift to the left.
Since input materials for producing ice cream are limited, the cost of
manufacturing ice creams will increase. As a result, it is predicted that the
demand for ice cream will go down and the demand curve will move to the left.
In conclusion, the decrease of the bee population will affect the market of ice
cream in a rough way as ice cream is an elastic product.

Ice cream prices

 Supply after CCD

Supply before CCD

P2

P1

Demand before CCD

Demand after CCD

Q1 Q2 Bee population

Ex3:

Prices ($)

P1

P2 Demand

Q1 Q2
Quantity

a) We have
 P1: $10/meal/person P2: $5/meal/person
Q1: 2 meals Q2: 6 meals
->Total expenditure: $20 -> Total expenditure: $30
%ΔQ 2
-> Elasticity of demand: Epd = %Δ P = −0.5 = 4 ( ignore the minus sign)

b)
- The promotional voucher has made a big impact on Mr. Binh family’s
monthly expenditure. By decreasing the cost of meals by 1%, the quantity
demanded rises by 4%, which increases total expenditure that Mr. Binh
spends on this restaurant by $10 ( from $20 to $30).
- The change in total expenditure will remain consistent with the value of
demand if all other factors are held constant (Ceteris paribus).
Ex4:
a)
P 1 P
Epd = Q’p x Q = - b x Q

+) We have: Epd = 1; P= $400; Q= 1000

 b = 0.4 (b>0)
P = a - bQd
 a = 800
 P = 800 – 0.4Qd (1)
+) We have: Eps = 0.5; P= $400; Q= 1000
 b = -0.8 (b<0)
P = a – bQs
 a = -400
 P = -400 + 0.8Qs (2)
QE = QS = QP
From (1) and (2) we have:
QE = 1000; PE = 400

Prices ($)
Supply

$400

Demand

10000 Quantity

b)
Percentage change in demand = 15%
 Percentage change in equilibrium price = 0.1 =10%
Prices ($)
B
Supply

Demand (new)
A

$400

Initial Demand

10000 Quantity

c)
As percentage change in demand increases, percentage change in equilibrium
price increases, or in other words, an increase in demand causes the equilibrium
price of apartments to increase.
Ex: 5
% Δ Qs
Percentage change in equilibrium price = - Es+ Ed = 8%

 The new price of steel is: P’= $108

When import restrictions on steel reduce the supply of steel by 24%, the
equilibrium price of steel increases (it increases from $100 to $108).
 New Supply

Prices ($) Initial Supply

B

$108

A
C
$100 Demand

Quantity