MAGDALENA UNIVERSITY

FACULTY OF BUSINESS SCIENCES

WORKSHOP I MONITORING MICROECONOMICS I

NOMBRE
GROUP:
DATE:
TOPICS: Demand Supply - elasticity, market equilibrium
VALUE 50 points

I. MULTIPLE CHOICE WITH SINGLE ANSWER (10 POINTS)

1. If when the price of good X1 increases, the demand for good X2 increases, then both
The goods are:

a) Substitutes. c) Independents.

b) Complementary. d) Ordinary.

When two goods are substitutes, it means that their consumption can be replaced by each other.
another good as it fulfills the same functions or characteristics. In that case, if the price of
if X1 increases, it means that people will demand fewer quantities of that good and
they will opt for another, such is the case of good X2. So that would explain why it increases the
demand for this good.

If a consumer's income increases and the demand for a good increases at a lower rate
proportion, for this consumer the good is:

inferior c) Ordinary.

b) Luxury. d) Basic.

It is understood that basic goods are those that are of primary necessity or in any case
they are in the family basket. That results in an income elasticity value
positive between 0 and 1.

3. In general, a more steeply sloped supply curve (with a greater slope) is more likely to:

a. be elastic with respect to the price.

b. none of the answers is correct.

c. have unit price elasticity.

d. inelastic with respect to price.

P
offer

X
4. If an increase in the price of a good has no effect on the
total income in that market, demand must:

a. all the proposed answers are correct.

b. to be inelastic with respect to price.
c. to have unit elasticity.
to be elastic with respect to price

Unit elasticity will not change its total income, because the effect on the variation in demand.
It will be proportional to the price, meaning that their income will remain constant.

5. The price elasticity of demand helps us to be able to:

a) determine the sensitivity of demand to a change in the price of goods

b) Determine the price sensitivity to a change in demand

c) Determine the quality of the goods

d) Determine whether they are substitute or complementary goods

The price elasticity of demand evaluates the ratio of the percentage change in demand.
and the percentage change in price. So this reflects how sensitive demand can be.
when the price varies. Whether it increases or decreases and to what extent it can affect the
demand.

6. If the income elasticity of a good is negative, then we can determine that:

a) The consumer has increased the consumption of the good for a certain level of income

b) The consumer has decreased the consumption of the good for a certain level of income.

c) The consumer does not consume the good at a certain income level.

d) none of the above

When the income elasticity is negative, it is said that we are facing an INFERIOR type good.
which has a negative relationship between their income level and the consumption of the good, that is, when
income increases, the consumption of the good decreases and vice versa.

A company is interested in increasing the income obtained from the sale of its
product. A market study determined that the price elasticity of demand for this
the merchandise is 0.5 and that the elasticity of demand with respect to advertising expenditure for this good
is 2. Consequently, this firm should

a) increase the price of your product and reduce advertising expenses by a greater proportion

b) increase the price of your product and increase advertising spending.

c) reduce the price of your product and maintain the same advertising expense.

d) reduce the price of your product and decrease advertising spending to a greater extent.

If the demand elasticity of the good is 0.5, it is known that it is inelastic. Therefore,
that it will be beneficial for the company to raise the price of its product since the demanders are not
so sensitive to changes in price. Regarding advertising spending, it is elastic,
To be very sensitive, the best thing is to reduce spending on advertising.
d. impossible to know with the information available

The fisherman does not care about the price, so he is not sensitive to the price offered to him, that is to say
what is perfectly inelastic in relation to supply.

II. SOLVE THE FOLLOWING EXERCISES (40 points)

The average consumer income in Spain increases from 2,900 euros to 3,250.
In view of this increase in income, consumers buy 42 kilograms of beef.
Knowing that the income elasticity is equal to -1.58. You are asked to calculate the new
demand for meat with the increase in income.

I 1=2.900
I 2=3.250
X 1 =42
eI=−1.58

∆%X
eI=
∆%I

3.250−2.900
∆%I= ∗100
2.900

∆ % I =12.06% → Percentage variation of Income

∆ % X =eI∗∆ % M

∆ % X =−1,58∗12.06%

∆%X=−19.06% → Percentage change of demand

X f=42 (1−19.06% )
X f=33.99→34→New meat demand with the new income increase

2. At a price of 500 units, the number of units that the company USB offers in the
market 4,250 units of the only good it produces. When the price increases to 540 u.m.,
the
The total volume of units offered in the market is 4,900.
It is requested:

p xi =500
x i=4.250

pf =540
p=4.900
1. Calculate the value of the price elasticity.
2. Explain what type of offer it is.
 eP=1.9 → Elastic offer

The supply of this good is sensitive to changes in price.

A painter creates 2 artistic works per month, his works have gained value in the market.
increased its price from 4,000 to 7,000 euros each painting. Verify the elasticity.

There is not enough information about the number of works to know how many there are.
they would sell at a new price of 7,000 euros.

Let's assume then that the same initial premise is repeated that 2 are always sold.
works per month.

So...
X i =2; X f=2
Pi=4,000;Pf =7,000

2−2
∗4.000
7,000−4,000
e=
2
0
e= ∗2.000
3,000
e=Perfectly inelastic

The painter is not sensitive to changes in price.

4. The functions of demand y offer of a good son:

D = 40 - 2P O= P – 5

Let D be the quantity demanded, O the quantity supplied, and P the price of the good.

a) Obtain the equilibrium price and quantity. Represent graphically.

O=D

P−5=40−2P

P+2P=40+5

3P=45

45
P=
3

P=Equilibrium price

O=15−5=10→Equilibrium quantity

( )
15

DEMAND

10 Q
b) If the authorities intervene by setting a price of 10 euros, indicate what quantity is
will be exchanged in the market, indicating whether there will be an excess of supply or demand and
what amount. Represent graphically.

O=10−5=5→Quantity offered

D=40−2 ( 10 ) =Quantity demanded

Price Demand Offer How much? Situation

15 10 10 10-10=0 Balance
10 20 5 20-5=15 Excess demand
of 15 units

P
OFFER

15

10

EXCESS DEMAND DEMAND

5 10 20 Q

c) Calculate the price elasticity of demand at equilibrium.

Pi=15;Pf=10

Qi=10;Qf=20

( ) ( )
20−10 10
∗15 ∗15
10−15 −5
e=− =−
10 10

e=2 ( 32 )
6
d) Suppose that the demand curve becomes D=85 – 2P - Calculate the price and the quantity.
that correspond to the new equilibrium and represent it graphically along with the equilibrium
initial. Explain the change that occurred and indicate what may have caused it.
change.

D=85−2P → Demand

O=P–5→Offer

p−5=85−2p

p+2p=85+5

3p=90

90
p= =30 → New equilibrium price
3

D=85−2 ( 30 )=25

O= ( 30 ) -5=25→Balance amount

Supply and Demand

80
75
70
65
60
55
50
45
40
35 NEW BALANCE
30
25
20 INITIAL EQUILIBRIUM
15
10
5
0
5 10 15 20 25 30 35
Quantities (Q)

OFFER DEMAND NEW DEMAND

Analysis:

When the demand equation changes, it shows the change that demand undergoes, it is
say, it changesfit was the part of the claim that does not depend on the prices, that is why
that the demand curve shifts to the right. These external factors can
be related to an increase in consumer income, the good can be
more preferred or in any case another substitute good may have increased its
price increasing demand for this good.

5 Currently, 6,000 units of carrots are sold at a price of $5 each.

 A). ∆ % p =? X=4,000
f

If the price elasticity of carrots is equal to 1, then it is unitary, so the

the price should vary in the same proportion as the demand.

To calculate the proportional variation of demand:

XF− X i
∆%X= ∗100
xI
4,000−6,000 −2.000
∆%X= ∗100→∆%X= ∗100
6,000 6,000
∆ % X =−0.3333∗100−33.33%

The demand would decrease by 33.33%, which implicitly means that the
the price must vary in the same proportion.
∆%x
∆%p=
e
33.33%
∆%p=
1
∆%p=33.33%

The price will vary by 33.33% if the demand is to be reduced to 4,000 units.

B). p=?
F

As we already know how much the price will vary, then...

pf =5 ( 1+33.33% )
pf =6,6666→New price

To check

6.6666−5
∆%p= ∗100
5
∆%p=33.33%

The price at which 4,000 units will be sold is $6.6666.

6. Let's take the case of an individual who receives an income of $700 weekly and buys 4
units of a product, for example. If the individual's income is now $800
weekly, what is the new consumption of the product if the income elasticity is equal to 3?

I I=700
x i=4
i f=800
hey=3

800−700
∆%i= ∗100
700
1
∆%i= ∗100
7
∆%i=14.28%
Consumption increased by 42.85%

( 37 )
X F =4 1+
40
X F= =5.7 → New consumption
7

Let's check...

5.7
∆%x= −1=0.4285→42.85
4