Full name: Ton Nu My Duyen

Class: E-BBA 11.1

Student code: 11191366

ASSIGNMENT TOPIC 3
Exercise 1
When a restaurant charges 10$ per meal (per person) it found that Mr.
and Mrs. Binh, who are typical customers, dined out once a month,
Ceteris Paribus. When the restaurant, as a promotional device,
introduced a voucher system giving patrons two meals for the price of
one, the Binh’s dined out three times a month.
a. Calculate the elasticity of demand for this restaurant.
−$ 5
+ Percentage change in price = $ 10
× 100 = - 50%
2
+ Percentage change in quantity = 1
× 100 = 200%
%∆Q −200 %
 Price elasticity of demand is: EpD = % ∆ P = 50 % = 4.0 >1 => Elastic

b. Explain what impact the promotional vouchers had on the Binh’s

monthly expenditure on meals at this restaurant. Is the change in total
expenditure consistent with the value of demand you calculate
- The promotional vouchers has made a big impact on the family’s
monthly expenditure by giving a double portion for the price of one ,
which pull the price down and increases the quantity demanded on meals
at the restaurant .
- The change in total expenditure will remained consistent with the value
of demand as long as all other factors held constant (Ceteris paribus)

Exercise 2
2.1. College Enrollment and Apartment Prices
Consider a college town where the initial price of rental apartments is
$400 and the initial quantity is 1,000 apartments. The price elasticity of
demand for apartments is 1.0 and the price elasticity of sully of
apartments is 0.5.
a. Use demand and supply curves to show the initial equilibrium, and
label the equilibrium point a.
∆Q P ∆ Q 400 ∆Q 5
+ EpD = 1 = ∆P . Q = .
∆ P 1000
↔ =
∆P 2

+ The demand equation: P = a – b×Qd

∆P
b= ∆Q = 0.4 → 400=a−0,4 ×1000 → a=800

 P = 800 – 0,4Qd
∆Q P ∆ Q 400 ∆Q 5
+ EpS = 0.5 = ∆P . Q = .
∆ P 1000
↔ =
∆P 4

+ The supply equation: P = c + d×Qs

∆P
d= ∆Q = 0.8→ 400=c+ 0.8 ×1000 →c =−400

 P = -400 + 0.8 QS
 Demand and Supply curve
1000
Price of rental apartment ($)

800 a
600

400

200

0
0 500 1000 1500 2000 2500 3000 3500
-200

-400

-600

The apartment quantity

b. Suppose that an increase in college enrollment is expected to

increase the demand for apartments in college town by 15 percent.
Use your graph to show the effects of the increase in demand on
the apartments market. Label the new equilibrium point b.

Initial New Supply

demand demand

c
440
a
Price of rental apartment ($) b
400

0
1000 1050 1150
 Apartment quantity
c. Predict the effect of the increase
in demand on the equilibrium price of apartments.
Percentage change∈demand
The percentage change in equibrilium price = E s+ E d
15 %
= 1+ 0.5 = 10%

So the equilibrium price will be increased by 10%

2.2 Regulations and Price of Housing

Suppose local building regulations increase the cost of building new
houses, decreasing supply by 12 percent. The initial price of new
housing is $200,000, the price elasticity of demand is 1.0, and the price
elasticity of supply is 3.0. Predict what is the effect of the regulations on
the equilibrium price of new housing. Illustrate your answer with a
graph that shows the initial point (a) and the new equilibrium (b).

The percentage change in equibrilium price

−Percentage change∈supply
= Es + E d

−(−12 %)
= 1+3
= 3%

So the equilibrium price will be increased by 3%

 New
supply
Initial
supply
c
206
The price of housing
200 a
(thousand dollars) b

Demand

0
12%

Houses quantity

2.3 Import Restrictions and the Price of Steel

Suppose import restrictions on steel decrease the supply of steel by
24 percent. The initial price of steel is $100 per unit, the elasticity of
demand is 0.7, and the elasticity of supply is 2.3. Predict what is the
effect of the import restrictions on the equilibrium price of steel.
Illustrate your answer with a graph that shows the initial point (a) and
the new equilibrium (b).
Percentage change∈supply
The percentage change in equibrilium price = Es + E d

−(−24 %)
= 0.7+2.3
= 8%

So the equilibrium price will be increased by 8%

 New
supply
Initial
supply

108
The price100
of steel ($)

Demand

0
24%

Steel quantity