Tutorial 2

1. Describe how each of the following will affect the supply of personal computers: (a) a rise
in wage rates; (b) an increase in the number of sellers of computers; (c) a tax placed on
production of computers; (d) a subsidy placed on the production of computers.
2. Describe how each of the following will affect the demand for personal computers: (a) a
rise in incomes (assuming computers are a normal good); (b) a lower expected price for
computers; (c) cheaper software; (d) computers become simpler to operate.
3. Computers are a complement to computer software. Suppose the price of a computer falls.
How does this fall in price affect the demand for computer software and the demand curve for
computer software.

4. Consumers' income declines and, as a result, the demand for margarine increases. Is
margarine a normal or an inferior good.

5. Suppose that the number of companies selling computer software decreases. How does
this change affect the supply of computer software and the supply curve of computer
software?

6. Suppose that the technology used to produce computers advances. How does this change
affect the supply of computers and the supply curve of computers?

7. In the market for bicycles, explain what happens to the supply and demand curves when
there is an increase in the price of steel used to make bikes.
8. If a rise in the price of personal computers from $3,000 to $4,000 lowers the number of
CD-RW’s purchased from 20 million a month to 16 million a month, what is the cross-price
elasticity of demand between computers and CD-RW’s? Are these goods substitutes or
complements?
9. Suppose a person with an income of $20,000 per year buys 10,000 oranges per year at a
price of $1 per orange. When the person’s income rises to $25,000, he or she buys 12,000
oranges per year at the same price per orange. What is the implied income elasticity of
demand for oranges? Are oranges a normal good or an inferior good?

10. The figure above shows the demand curve for pizza. Using the midpoint method and
moving from point A to point B, calculate the
a) percentage change in price.
b) percentage change in quantity demanded.
c) price elasticity of demand.
11. Consider two goods: peanut butter and jelly. If the price of jelly increases from $2 a jar to
$3 per jar and the quantity demanded of peanut butter decreases from 50 jars to 45 jars, what
is the cross elasticity of demand? Are the goods substitutes or complements?

12. If income increases from $50,000 to $60,000 while the demand for a good increases from
100 units to 125 units, what is the income elasticity of demand? Is the good a normal good or
an inferior good?

13. June makes holiday wreaths and sells them during the holiday season. The figure above
shows her supply curve of wreaths per week. Use the midpoint method in this problem.
a) Calculate the percentage change in quantity between points A and B.
b) Calculate the percentage change in price between points A and B.
c) Calculate the price elasticity of supply between points A and B.

14. Below are the demand/supply schedules for tennis Nika shoes.
PRICE PER PAIR (RM) QUANTITY DEMANDED QUANTITY SUPPLIED
105 25,000 100,000
90 30,000 80,000
75 40,000 60,000
60 50,000 50,000
45 60,000 40,000
30 80,000 30,000
15 100,000 20,000
a) What is the equilibrium price and quantity of Nika shoes?
b) What is the Price elasticity of demand, and Price elasticity of supply
for Nika shoes when price changes from

i) RM60 to RM75 per pair? Show your calculations. Explain you answers and
determine the types of elasticity
ii) RM 15 to RM60 per pair? Show your calculations. Explain you answers and
determine the types of elasticity
iii) RM 60 to RM105 per pair? Show your calculations. Explain you answers and
determine the types of elasticity
c) Compute and explain Price elasticity of demand, and Price elasticity of supply for Nika
shoes at average price of RM30 and RM45. Determine the types of elasticity.

PLEASE DO QUESTION 2, 3, 4, 8, 9, 10, 11, AND 12 ONLY