1. Intermediate Microeconomics
ASSIGNMENT No. 1
Analytical Tools in Microeconomics
Chapter 1 + Appendix
A) Supply-Demand Analysis
Multiple Choice
1. Demand is:
a) Set of different price-quantity combinations demanded by an individual;
b) quantity demanded by all consumers in given market;
c) point defined by specific price and quantity demanded;
d) relationship between price and quantity.
2. A change in demand is portrayed graphically as:
a) a movement along the initial demand curve;
b) a shift of the demand curve;
c) change of preferences;
d) change of quantity.
3. The slope of the supply curve is normally expected to be:
a) positive;
b) negative;
c) zero;
d) constant.
4. A market equilibrium will occur where
a) the internal forces of the market are balanced;
b) the demand and supply curves intersect;
c) the quantity supplied equals the quantity demanded;
d) the demand and supply curves have the same slope..
5. Imposing of a price ceiling will:
a) increase price and quantity supplied;
b) reduce price and quantity supplied;
c) increase price and reduce quantity supplied;
d) reduce price and increase quantity supplied.
Problems
1. Explain each of the following statements using supply and demand diagrams:
a) When there is a drought in southern Europe, the price of olive oil rises in supermarkets
throughout Europe
b) When the Olympic Games were held in Greece in 2004, the price of hotel rooms in
Athens rocketed
c) When a war breaks out the Middle East, the price of petrol in Europe rises and the price
of used Mercedes falls.
d) Public policy makers successfully reduce the amount that people smoke through anti-
smoking campaign on television, mandatory health warnings on cigarette packages,
prohibition of cigarette advertising etc.
e) Public policy makers who want to reduce the amount that people smoke will levy a tax
on cigarette companies.
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2. 2. “A shift outward in the demand curve always results in an increase in total spending (price
times quantity) on a good. On the other hand, a shift outward in the supply curve may increase
or decrease total spending.” Explain.
3. Minimum wage legislation specifies that workers must be paid at least some minimum hourly
wage. Analyze the effect upon wages and hours worked of low-skilled or untrained workers
resulting from the imposition of a minimum wage above existing wage rate, ceteris paribus.
4. The rent control agency in a town found that the demand is: QD = 100 - 5P, with quantity
measured in tens of thousands of apartments, and price, the average monthly rental rate,
measured in hundreds of USD. The city – board realtors has shown that supply is:
QS = 50 + 5P. If both the rent control agency and the board of realtors are right about demand
and supply, what is the equilibrium market price? What will happen if the control agency sets a
rental of USD 300 per month?
Analytical Tools in Microeconomics
B) Optimization
Multiple Choice
1. If we make X calories eaten per day and Y body weight, then equation Y = f(X) shows:
a) the relationship between the amount of food intake and an individual´s weight;
b) causality, where the value of Y is a dependent variable completely determined by X;
b) causality, where the value of X is a dependent variable completely determined by Y
a) causality, where X is an independent variable which may be given any value
2. In case when a straight line has a slope of 0, the function can be graphically shown as:
a) horizontal line; c) line identical with x-axis;
b) vertical line; d) line identical with y axis.
3. If we have two linear functions: (a) Y = -X + 10 and (b) Y = -2X + 10, than:
a) they have different y-intercept;
b) (b) function is flatter than (a) function;
c) (b) function is steeper then (a) function;
d) both function have the same slope.
4. The slope of a nonlinear function at some particular point
a) is the slope of the straight line taht is tangent to the function at that point.
b) is the slope of a straight line connecting the origin and the point.
c) cannot be determined.
d) is constant for the entire function.
5. The idea of the derivative of a function used by those economic concepts that are based on
looking at the effect of a small (marginal) change in a variable X on some other variable Y is
simply defined as:
a) the limit of the ratio dY/dX as dX gets very small;
b) the change of depending variable when independent variable increases constantly by one
unit;
c) the slope of the straight line that is tangent to the function at a particular point;
d) the change of depending variable when independent variable increases by an amount
closely to zero.
Problems
1. Construct graph of the linear function: Y = 3 + 2X including its intercepts with y and x axes.
Specify the slope of this function.
2. Suppose that the relationship between the grapes harvested per hour (G, measured in pounds)
and number of workers hired (L, measured in worker hours) is given by:
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3. G = 100 + 20L.
a) How many additional grapes are harvested by the 10 th worker? The 20th worker? The
50th worker?
b) What is the average productivity when 10 workers are hired? When 20 and 50 workers
are hired?
3. Calculate marginal revenue of a firm, whose total revenue function is defined as:
TR = 100q - q3 in case that it sells 4 units of production..
4. Find the maximum of total revenue function defined as TR = 400q – 2q2.
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