ECO 1010: PRINCIPLES OF MICROECONOMICS
ASSIGNMENT #1 - (25%)
LECTURER: DAVID W. NERUBUCHA
Due: see syllabus
Deduct 1 mark each day after due date
Answer All Questions
1.(a)
Suppose a producer sells 1,000 units of a product at $5 per unit one year, 2,000 units at
$8 the next year, and 3,000 units at $10 the third year. Is this evidence that the law of
demand is violated? Explain
(b).
What effect should each of the following have on the demand for gasoline in a
competitive market? State what happens to demand. Explain your reasoning in each
case and relate it to a demand determinant.
(a) An increase in the number of cars
(b) The economy moves into a recession
(c) An increase in the price of car insurance, taxes, maintenance
(d) Consumer expectations of substantial price increases in gasoline
2.
(a) What effect will each of the following most likely have on the supply of corn in a
competitive market? State what happens to supply. Explain your reasoning in each
case and relate it to a supply determinant.
(a) the development of an improved corn seed that resists drought conditions
(b) an increase in the price of soybeans which can also be planted on land used for
growing corn
(c) an increase in government payments for growing corn
(d) an increase in the price of fertilizer
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dnerubucha@usiu.ac.ke
(b)
Given the products below and the events that affect them, indicate what happens to
demand or supply, and the equilibrium price and quantity in a competitive market.
Identify the determinant of demand or supply that causes the shift.
(a) Blue jeans. The wearing of blue jeans becomes less fashionable among consumers.
(b) Computers. Parts for making computers fall in price because of improvements in
technology.
(c) Lettuce. El Nino produces heavy rains that destroy a significant portion of the
lettuce crop.
(d) Chicken. Beef prices rise because severe winter weather reduces cattle herds.
3.
Given the products below and the events that affect them, indicate what happens to
demand, supply, equilibrium quantity, and equilibrium price in a competitive market.
Identify the determinant of demand and supply that causes the shifts.
(a) Home heating oil. There is a severe winter in the regions using the oil; the cost of a
barrel of oil rises for producers of home heating oil.
(b) Organic foods. People become more concerned about chemical additives in
food; traditional farms are switching to more organic methods.
(c) Film cameras. The price of digital cameras falls for consumers; there is a decline in
the number of stores selling film cameras.
(d) Bread. Many consumers adopt a low carbohydrate diet and avoid bread
products; the price of flour falls for bread producers.
4(a).
What is a price ceiling and what are its economic effects?
(b)
Use data in the following table to explain the economic effects of a price ceiling at $6,
at $5, and at $4.
Quantity
Quantity
Price
demanded
supplied
$7
4,500
4,500
6
5,000
3,500
5
5,500
2,500
4
6,000
1,500
5(a).
What is a price floor and what are its economic effects?
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(b)
Use data in the following table to explain the economic effects of a price floor at $8, at
$9, and at $10. Explain the economic effects.
Price
$10
9
8
7
3
Quantity
demanded
3,000
3,500
4,000
4,500
Quantity
supplied
7,500
6,500
5,500
4,500
dnerubucha@usiu.ac.ke