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Question 1.

The market for gasoline is initially in equilibrium with the demand and supply curves having their usual shape. With the aid of appropriate diagrams, explain in words how each of the following separate events would impact the market for gasoline. (Gasoline is a liquid obtained from the refinement of petroleum, or crude oil).

What will be the effect on equilibrium price and quantity as compared to the initial equilibrium? Explain your answers by stating which curve(s) move and why. Use a separate diagram in each situation. Make sure you label your diagrams well so that the initial supply and demand curves are identified as are the curves that shift and the initial and new equilibrium price and quantity.

  • Given the current “stay-at-home” restrictions, there has been a huge decrease in the number of vehicles on the road. [4 marks, that is 2 marks for correct diagram, 2 marks for correct explanation]
  • Oil producing countries are cutting back production during the ongoing coronavirus outbreak in an effort to increase crude oil prices. [4 marks, that is 2 marks for correct diagram, 2 marks for correct explanation]
  • Events (a) and (b) occur simultaneously (at the same time).[6 marks]
  • A recent newspaper article quoted: “the lower price ofgasoline is expected to increase the demand for gasoline, all else being equal.” What, if anything, is wrong with this statement?Explain. [2 marks]

Question 2.

Suppose the market demand and supply curves are represented by the following equations:

Qd = 600 – 60P

Qs = -30 +30P

  • Determine the equilibrium price and quantity. (Show your calculations) [2 marks]
  • Illustrate these curves on a graph, labelling the curves, intercepts and equilibrium price and quantity. [2 marks]

Question 3. (Show all calculations)

  • Using the midpoint formula for calculating elasticity of demand, if the price decreased from $16 to $10, what would be the elasticity of demand if the quantity demanded changed from 8 to 12 units? Interpret your results. [1 mark for calculations, 1 for correct interpretation].
  • If the price elasticity of demand for hamburgers is 1.5 and the quantity demanded of hamburgers equals 40,000, what will happened to the quantity of hamburgers demanded if the price increases by 10%? What is the change in quantity? Briefly explain your answer. [2 marks]
  • If the price of Domino Pizza decreases by 5%, all else equal, and the quantity of pizza sold increases by 5%, what is the price elasticity of demand for Peter’s pizza? How does Total Revenue (Expenditure) change? Interpret your results. [2 marks]
  • The price of tickets to see Moosehead hockey games in Halifax is increased by 10% and as a result attendance at Dal Tiger hockey games increases by 8%.
  • What is the cross-price elasticity of demand for Dal hockey with respect to the price of Moosehead games, all else being equal? Interpret your results. [2 marks]
  • Did the demand for Dal hockey games change? Explain in a few words. [2 marks]

(iii)Did the demand for Moosehead hockey games change? Explain in a few words. [2 marks]

e. You have estimated the price elasticity of demandfor minimum wage workers to be -1.4. There is a proposal to increase the regulated minimum wage by 12%. If this proposal is implemented (introduced), what will be the percentage change in employment (quantity demanded) of minimum wage workers?Interpret your results. [2 marks]

f. You decide to purchase 2 cappuccino each week regardless of price, what does this say about your elasticity of demand for cappuccino? Briefly explain your answer. [2 marks]