IB Economics Quantitative Micro Questions for 2014
Demand
The weekly demand for DVD hire in Pomtown is given as follows:
Qd = 750 - 50P
where Qd represents the weekly demand and P is the price per DVD in
Pommie dollars ($)
1) Calculate the weekly demand for DVD hire if the price is
(a)
$5 500
(b)
$10 250
2) Calculate the price at which Qd would be
(a)
650 $2
(b)
150 $12
3) From the equation, identify the horizontal intercept (where the
demand curve would meet the horizontal axis) if the demand curve
were to be plotted 750
4) At what price would there be no demand? $15
5) Explain the significance of the -ve sign in the equation inverse
relationship between price and q.d.
6) Plot the demand curve from the given equation (from P = 0 to P = 15)
7) As a result of increased downloading of movies, the weekly demand
for DVD hire decreases by 320 at all prices. Describe the effect on
the demand curve you have drawn Demand shifts in by 320 at each
price
The weekly demand changes (from the original) to Qd = 750 - 75p
8) Explain the effect of this change on the demand curve Becomes less
steep- the coefficient dtermines the gradient
9) Suggest a possible reason for the change Consumers are more
responsive to price changes- greater availability of substitutes for
example
Supply
The weekly supply for DVD hire in Pomtown is given as follows:
Qs = 150 + 10P
where Qs represents the weekly supply and P is the price per DVD in
Pommie dollars ($)
10) Calculate the weekly supply of DVDs for hire if the price is
(a)
$5 200
(b)
$12 270
11) Calculate the price at which Qs would be
(a)
350 $20
(b)
200 $5
12) From the equation, identify the horizontal intercept (where the
supply curve would meet the horizontal axis) if the supply curve were
to be plotted. 150
13) Explain the significance of the +ve sign in the equation positive
relationship between price and q.s.
14) Plot the supply curve from the given equation (from P = 0 to P = 15) on
the same graph as your demand curve
15) As a result of increased costs, the weekly supply of DVDs for hire
decreases by 40 at all prices. Describe the effect on the supply curve
you have drawn Supply will shifty in by 40 at eaxch and every price
level
The weekly supply changes (from the original) to Qs = 150 +15P
16) Explain the effect of this change on the supply curve Curve becomes
less steep
17) Suggest a possible reason for the change Producers become more
responsive to price changes – increase capacity/stock holding
Equilibrium
18) Calculate the equilibrium price and quantity from the (original)
equations given above. P = $10 Qd/Qs = 250
19) Calculate the excess demand or supply at a price of
(a) $5 excess demand of 300 (b) $15 excess supply of 300
20)
Calculate the price which would lead to a surplus of 120
DVDs/week.
Qs-Qd = 120 150 + 10p – (750 – 50p) = 120 solve for P = $12
Elasticity
21) Calculate the PED if a price increase of 20% causes the quantity
demanded to fall by 25% 1.25
22) If P = $4 and Qd = 300, calculate the new Qd resulting from a price
increase to $5 if the PED = 1.5. 187.5
23) Calculate the PED using the equation/graph above (Qd = 750 - 50P)
if price
(a) increases from $10 to $11 2
(b) decreases from $10 to $8 4
24) Explain whether the sign (+ve or -ve) of the co-efficient of
elasticity is important No- always –ve as the relationship between
price and qd is always negative
25) Using your answers above to illustrate, explain why the gradient of
the demand curve is not the same as the value of PED Gradient is -50
and PED varies: -2 , -4
26) Using your answers above, explain why the PED varies along a
straight line downward-sloping demand curve. PED is infinite at
highest point of demand curve and 0 at lowest point. At high prices
consumers are going to be extrememy responsive to changes in price
compare to changes to price when the original price is exceedingly low
(in relation to income)
27) For Q22 above, calculate the change in total revenue as a result of
the price increase. Change = $262.5
28) If price falls and TR increases, what can be said about the PED?
PED>1- elastic
29) If price increases and TR increases, what can be said about the
PED? PED< 1- inelastic
30) If PED = 1, what will be the effect on TR of a fall in price of 6%?
TR will remain the same
31) If PED = 0, what will be the effect on TR of a price increase of
3.5%? TR will increase by 3.5%
32) The price of good A increases by 12%, causing a fall in the Qd of
good B by 18%. calculate the XED and comment on the relationship
between goods A and B XED= -1.5 strong complements
33) The price of good B falls from $8 to $6, leading to an increase in
the quantity of good C demanded, from 600 per week to 900 per
week. Calculate the XED and comment on your result. XED= -2
strong complements
34) Pa = $5, QDb = 400 XED = -0.8. calculate the change in the quantity
of good B demanded if Pa increases to $6. Fall in QDb of 64
35) Calculate the YED if an increase in income of 12% leads to an
increase in the quantity demanded for good A of 9%. Comment on
your result. YED = 0.75- normal but not superior
36)
2006
2007
Y
$3500
$4200
Qd
300
500
From the information above, calculate the YED and comment on your
answer. YED = 3.33 superior
37) Comment on the significance of the YED values for three products good A has YED of 0.1, while good B has YED of -0.4 and good C has
YED of 2.5 0.1- normal but income inelastic, -0.4 – inferior but income
inleastic, 2.5- superior
38) Calculate the PES if a price increase of 20% causes the quantity
supplied to increase by 16% PES= 0.8
39) If P = $6 and Qs = 500, calculate the new Qs resulting from a price
increase to $7 if the PES = 0.6. Qs = 550
40) Calculate the PES using the equation/graph above (Qs = 150 + 10P) if
price (a) increases from $10 to $11 (b) decreases from $10 to $9
a) 0.4 b) 0.4
41) "When looking at a linear supply equation, it is possible to say
immediately whether supply is elastic, inelastic or unitary.” Explain
how this is so. True- unitary then curve will go thro’ origin, inelasticit will intersect the x-axis, elastic- it will intersect the y-axis (you
have to calculate the point of intersections on the axes)
Tax incidence
In Pomtown (see Q10 above) Qs = 150 + 10P
Qd=750-50P
An indirect tax of $3 per DVD is imposed on DVD hire.
42)
Determine the NEW supply fuction as a result of this tax.
Qs = 120+10P
43)
On the graph, draw the new supply curve
44)
Calculate the new equilibrium position and check via your graph.
P = $10.5, Q= 225
45)
Identify/calculate the following:


change in price $0.50
change in revenue per unit to the producer $2.5









incidence per unit on the producer $2.5 or 5/6
incidence per unit on the consumer $0.5 or 1/6
change in consumer surplus $118.75
change in producer surplus $593.75
total incidence on consumers $112.5
total incidence on producers $562.5
change in revenue to producers -$812.5
change in consumer expenditure -$137.5
tax revenue $675
Price controls
Using the original demand and supply curves.......
46)
a ceiling price of $5 is imposed on DVD hire. Calculate the
excess demand and change in consumer spending/producer revenue
at $5 Qd= 500 & Qs = 200 excess demand = $300.
Consumer spending before: 10x250 =$2500
Consumer spening after: 5x200 = $1000
Change in cons. Spending: -$1500.
This will also be the change in producer revenue
47)
A floor price of $14 is imposed. calculate the government
expenditure which would be needed to purchase the surplus.
At $14 Qd = 50 & Qs = 290 therefore excess supply of 240
Surplus of 240 needs to be bought at $14: 240 x 14 = $3360