COURSE NAME

ECON 260

COURSE NUMBER

Fundamentals of Microeconomics

INSTRUCTOR NAME

Dr. Mamdouh Ghanem

Assignment NAME

Assignment. 1, Fall 2014-2015

STUDENT NAME

ID NUMBER

Abdulla Alhajeri

20123155

DATE

Part 1.Choose the correct answer of the following:

1-

Perfectly competitive market has

A-

Only one seller

B-

At least a few sellers

C-

Many buyers and sellers

D-

Firms that set their own prices

2- If an increase in the price of blue jeans leads to an increase in the demand for tennis shoes, then
blue jeans and tennis shoes are
A- Substitutes
B- Complements
C- Normal goods
D- Inferior goods
3- The law of demand states that an increase in the price of a good
A- Decreases the demand for the good
B- Decreases the quantity demanded for that good
C- Increases the supply of the good
D- Increases the quantity supplied of that good
4- The law of supply states that an increase in the price of a good
A- Decreases the demand for the good
B- Decreases the quantity demanded for that good
C- Increases the supply of the good
D- Increases the quantity supplied of that good
5- If an increase in consumer incomes leads to a decrease in the demand for camping equipment,
then camping equipment is
A- A complementary good
B- A substitute good
C- A normal good
D- An inferior good
6- Which of the following shifts the demand for watches to the right?
A- A decrease in the price of watches
B- A decrease in consumer incomes if watches are a normal good
C- A decrease in the price of watch batteries if watch batteries and watches are
complements
D- An increase in the price of watches
7- All of the following shift the supply of watches to the right except
ABCD-

An increase in the price of watches

An advance in the technology used to manufacture watches
A decrease in the wage of workers employed to manufacture watches
Manufactures' expectations of lower watch prices in the future

8- If the price of a good is above the equilibrium price,

A- There is a surplus and the price will rise
B- There is a surplus and the price will fall
C- There is a shortage and the price will rise
D- There is a shortage and the price will fall
9- If the price of a good is below the equilibrium price,
A- There is a surplus and the price will rise
B- There is a surplus and the price will fall
C- There is a shortage and the price will rise
D- There is a shortage and the price will fall
10- If the price of a good is equal to the equilibrium price,
A- There is a surplus and the price will rise
B- There is a surplus and the price will fall
C- There is a shortage and the price will rise
D- The quantity demanded is equal to the quantity supplied and the price remains
unchanged
11- An increase (rightward shift) in the demand for a good will tend to cause
A- An increase in the equilibrium price and quantity
B- A decrease in the equilibrium price and quantity
C- An increase in the equilibrium price and a decrease in the equilibrium quantity
D- A decrease in the equilibrium price and an increase in the equilibrium quantity
12An inferior good is one for which an increase in income causes a(n)
A- Increase in supply
B- Decrease in supply
C- Increase in demand
D- Decrease in demand
13If a small percentage increase in the price of a good greatly reduces the quantity
demanded for that good, the demand for the good is
A- Price inelastic
B- Price elastic
C- Unit price elastic
D- Income inelastic
14The price elasticity of demand is defined as
A- The percentage change in price of a good divided by the percentage change in the quantity
demanded of that good
B- The percentage change in income divided by the percentage change in the quantity demanded
C- The percentage change in the quantity demanded of a good divided by the percentage
change in the price of that good
D- The percentage change in the quantity demanded divided by the percentage change in income
15If the income elasticity of demand for a good is negative, it must be
A- A luxury good
B- A normal good
C- An inferior good
D- An elastic good
16If consumers think that there are very few substitutes for a good, then
A- Supply would tend to be price elastic
B- Supply would tend to be price inelastic
C- Demand would tend to be price elastic

D- Demand would tend to be price inelastic

17- If the demand for a given product is inelastic, a 3 percent increase in the price will
A- Decrease the quantity demanded by more than 3 percent
B- Decrease the quantity demanded by less than 3 percent
C- Increase the quantity demanded by more than 3 percent
D- Increase the quantity demanded by less than 3 percent
18- A decrease (leftward shift) in the supply for a good will tend to cause
A- An increase in the equilibrium price and quantity
B- A decrease in the equilibrium price and quantity
C- An increase in the equilibrium price and a decrease in the equilibrium quantity
D- A decrease in the equilibrium price and an increase in the equilibrium quantity
19- Which of the following would cause a demand curve for a good to be price inelastic?
A- There are a great number of substitutes for the good
B- The good is inferior
C- The good is a luxury
D- The good is necessity
20- Suppose there is an increase in both the supply and demand for personal computers. In the
market for personal computers, we would expect the
A- Equilibrium quantity to rise and the equilibrium price to rise
B- Equilibrium quantity to rise and the equilibrium price to fall
C- Equilibrium quantity to rise and the equilibrium price to remain constant
D- Equilibrium quantity to rise and the change in the equilibrium price to be ambiguous

Part 2.Suppose that you have been hired as an economic consultant by OPEC and given the following
schedule showing the world demand and supply for oil:
(60 Marks)
Price ($/barrel)
10

Quantity Demanded
(millions of barrels/day)
60

Quantity Supplied
(millions of barrels/day)
20

20
30
40
50

50
40
30
20

30
40
50
60

Your advice is needed on the following questions (use the diagram):

1- What is the price, quantity of supply and quantity of demand in equilibrium situation?
2- If the price raises from $20 to $30 a barrel, will the total revenue from oil sales increase or
decrease?
3- What are the values of the price elasticity of booth demand and supply for price changes from
$20 to $30 a barrel?
4- If the price of oil degrease from equilibrium price $30 to new price $20 then:
-

What do we call the gap between the quantity demanded and quantity supplied?

What is its value?

What is your advice to return to the equilibrium situation?

Answer (1)

70
60
50
40
Price

30
20
Equilibrium

10

Quantity

0
10

20

30

40

50

Quantity

(2)
If the price raises from $20 to $30 a barrel, will the total revenue from oil sales will raise
(3)

The price elasticity of demand =

Q p
.
p q
= (40-50)/ (30-20)*20/50
=-2/5

The price elasticity of supply =

Q p
.
p q
= (50-40)/ (30-20)*20/50
=2/5

(4) If the price of oil degrease from equilibrium price $30 to new price $20 then:
-

The gap between the quantity demanded and quantity supplied is called shortage
The Value of the Gab = 10$
The advice to return to the equilibrium situation is Suppliers will raise the price due
to too many buyers chasing too few goods, thereby moving toward equilibrium