BA206: Microeconomics Assignment#2

BA206: Microeconomics

Assignment#2

Name______________________________________________________

Problem 1 (20%)

A.    What are the determinants of demand? What happens to the demand curve when any of these determinants change? Distinguish between a change in demand and a movement along a fixed demand curve, noting the cause(s) of each.

B.    What are the determinants of supply? What happens to the supply curve when any of these determinants changes? Distinguish between a change in supply and a change in the quantity supplied, noting the cause(s) of each

Problem 2

Suppose that the supply schedule of Belgium Cocoa beans is as follows:

Price of cocoa beans
(per pound)    Quantity of cocoa beans supplied
(pounds)
$40    700
$35    600
$30    500
$25    400
$20    300

Suppose that Belgium cocoa beans can be sold only in Europe. The European demand schedule for Belgium cocoa beans is as follows:

Price of Belgium cocoa beans
(per pound)    Quantity of Belgium cocoa beans demanded
(pounds)
$40    100
$35    300
$30    500
$25    700
$20    900

a.    What are the equilibrium price and quantity of cocoa beans from Belgium? (Hint: draw the graphs on a separate sheet of paper or using Microsoft Excel to see the intersection point or equilibrium point) (10%)

Now suppose that Belgium cocoa beans can be sold in the U.S. The U.S. demand schedule for Belgium cocoa beans is as follows:

Price of Belgium cocoa beans
(per pound)    Quantity of Belgium cocoa beans demanded
(pounds)
$40    200
$35    300
$30    600
$25    800
$20    1000

b.    What is the demand schedule for Belgium cocoa beans now that U.S. consumers can also buy them? (Hint fill out the last column in the table below for the total demand) (10%)

Price of Belgium cocoa beans    Quantity of Belgium cocoa beans demanded    Quantity of Belgium cocoa beans demanded    Total Demanded
(per pound)    (pounds)    (pounds)    (pounds)
$40     200    100    
$35     300    300    
$30     600    500    
$25     800    700    
$20     1000    900    

C.    What is the new equilibrium price and quantity of cocoa beans from Belgium? (Hint: first draw the demand and supply graph to see the equilibrium point) (10%)

D.    What will happen to the price at which Belgium plantation owners can sell cocoa beans? Make sure to use numerical values to back up your argument. (10%)

E.    What will happen to the price paid by European consumers? Make sure to use numerical values to back up your argument. (10%)

F.    What will happen to the quantity consumed by European consumers? (10%)

Problem 2 (20%)

What are the major determinants of price elasticity of demand? Use those determinants and your own reasoning in judging whether demand for each of the following products is probably elastic or inelastic: (a) bottled water; (b) toothpaste; (c) Crest toothpaste; (d) ketchup; (e) diamond bracelets; (f) Microsoft’s Windows operating system