ECO 2023
Principles of Microeconomics
Modules 3 & 4
1) There are two main arguments that can be made which you learned in this class about
why the supply curve slopes up. State these two arguments and give a description of
each.
2) In Indonesia, at least 50% of the population’s intake of protein comes from fish. Consider
the supply for fish in Indonesia.
a. Illustrate what will happen to the supply of fish if fishermen develop nets that are
more efficient.
b. The price of boat fuel increases by 16%. Illustrate the effects of this on the supply
of fish.
c. The price of fish increases by 200%. Illustrate the effects of this on the supply of
fish.
3) When you order items off Amazon, the price of an item is not the same as the price you
pay at checkout, because of taxes. In the model below, let S2 be Amazon’s supply curve
for sunglasses, S1 be the supply curve for the same good with the tax considered, and D1
be the demand for sunglasses on Amazon.
a. What is the equilibrium price and quantity before
the tax?
b. What price do consumers pay after the tax?
c. Suppose P1=$45, P2=$40. The price firms earn
(let’s call this P3) as a result of the tax is best
described by which of the following:
(a) P3<$40
(b) $40<P3<$45
(c) P3>$45
d. When a tax is imposed, do more or less
consumers purchase sunglasses relative to an
economy with no tax?
4) According to Zillow, the median
home in New York is valued at $649,026. Suppose that the mayor decides that the
number of new homeowners in the city is too low, so to help stimulate the housing
market the city council approves a price control. Consider the following questions in
terms of the supply and demand framework as taught in class. It may help to draw
the model.
a. What type of price control would the government consider implementing?
b. Would this create a surplus or shortage in the market for homes?
c. Does the price control achieve the goal of increasing homeownership?
5) List the determinants of supply and demand. Since notecards are not allowed for this
exam, it may be helpful to memorize these.
ECO 2023
Principles of Microeconomics
Modules 3 & 4
6) Anne and Bobby are arguing about why the price of pizza has decreased in their town.
Anne argues that an influx of immigrants from a neighboring town to their town has
increased the consumption of pizza over the past year. Bobby argues that the price of
flour, an input in the production of pizza, has increased. Assume that both Bobby and
Anne are correct in their arguments. Illustrate the effects of this on equilibrium
price and quantity in the supply and demand framework.
7) Consider the market for iPads. Using the supply and demand framework, show the
effects on equilibrium price and quantity in the following scenarios.
a. As students become more environmentally conscious, they use less paper for note
taking.
b. The price of Samsung tablets decreases.
c. A new mine of columbite tantalite, a rare mineral used in the production of iPads
is found.
d. In a given year, the government collects too much in taxes and provides a rebate
to consumers.