1

. Explain what economists mean by “demand” and by “supply”

. (4 points)

2

. Explain how demand curve shapes according to “law of demand” and explain how supply curve

shapes according to “law of supply”

. (2 points)

3

. Explain the difference between “change in demand” and “change in quantity demanded”

. ( 3 points)

4

. Explain the difference between the “change in supply” and the “change in quantity supplied”

. ( 3

points)

5

. When economists name where market demand crosses market supply as the “equilibrium”, which

forces are considered as balanced at the equilibrium price? (4 points)

6

. When departed, how is market equilibrium price restored? In your answer, do discuss the processes

of restoration first by allowing market price to begin at a level above the equilibrium price and then

by allowing market price to begin at a level below the equilibrium price

. (4 points)

7

. Name the five demand shifters

. Provide an example for change in each of the five shifters that will

lead shift to occur to the market demand

. (4 points)

8

. Name the five supply shifters

. Provide an example for change in each of the five shifters that will

lead shift to occur to the market supply

. (4 points)

9

. Answer parts a, b, and c of the question

. (12 points)

a

. Compute the change in price, the mid-point price, the change in quantity demanded, the mid-point

quantity demanded, the absolute value of the price elasticity of demand (P

.E

.O

.D

.), the total

revenue, and the change in the total revenue based on the demand given below by assuming that

the price is raised from $4 to $5

. [Do not enter any numerals to cells already filled with “- -“

. “- -“ is

a symbol used for indicating no solutions exist

.] Price

$4

$5 Quantity

demande

d

1,000

750 Change

in Price Midpoint

Price Change

in Qd Midpoint Qd The

Absolute

Value for

P

.E

.O

.D -- -- -- -- -- Total

Revenue Change

in Total

Revenue

-- b

. Compute the change in price, the mid-point price, the change in quantity demanded, the mid-point

quantity demanded, the absolute value of the price elasticity of demand (P

.E

.O

.D

.), the total

revenue, and the change in the total revenue based on the demand given below by assuming that

the price is raised from $4 to $5

. [Do not enter any numerals to cells already filled with “- -“

.] Price Quantity

demande

d Change

in Price Midpoint

Price Change

in Qd Midpoint Qd The

Absolute

Value for

P

.E

.O

.D Total

Revenue Change

in Total

Revenue $4

$5 1,000

800 -- -- -- -- -- -- c

. Compute the change in price, the mid-point price, the change in quantity demanded, the mid-point

quantity demanded, the absolute value of the price elasticity of demand (P

.E

.O

.D

.), the total

revenue, and the change in the total revenue based on the demand given below by assuming that

the price is raised from $4 to $5

. [Do not enter any numerals to cells already filled with “- -“

.] Price

$4

$5 Quantity

demande

d

1,000

880 Change

in Price Midpoint

Price Change

in Qd Midpoint Qd The

Absolute

Value for

P

.E

.O

.D -- -- -- -- -- Total

Revenue Change

in Total

Revenue

-- 10

. Provide a definition to the “price elasticity of demand” in words and in formula

. Then, explain how

total revenue changes as price increases when the price elasticity of demand of a product is (1)

elastic, (2) unitary elastic, and (3) inelastic

. (7 points)

11

. What will be the percentage change in Qd in each of the following cases?

(1) The price elasticity of demand is 2 for oranges and there is a price change of 10%

.(2) The price elasticity of demand is 1 for weekly grocery and there is a price change of 10%

.(3) The price elasticity of demand is 0

.3 for gasoline and there is a price change of -10%

. (4

.5%)

12

. Explain what marginal utility is

. Provide an example to show that law of diminishing marginal

utilities is in the working

. (2

.5 points)

13

. Write down formula that a firm uses for computing the TC, AFC, AC, AVC, and MC

. (5 points)

14

. Compute values for the TC, AFC, AVC, AC, and MC based on the cost information given below for a

short-run firm

. (8 points)

Total

Output

100

200 FC

500

500 VC

1000

2000 TC AFC AVC AC 15

. Provide an explanation to law of diminishing marginal returns

. Explain effects of the law of

diminishing marginal returns on how the marginal cost curve and the average cost curve are

generally graphed in diagram for short-run firms)

. (8 points) MC