The document discusses how changes in income, prices of substitutes and complements, taxes, and technology would impact the demand and supply of goods X and Y. It also provides an example equilibrium calculation for a good with given demand and supply functions and determines the new equilibrium price and quantity when a $6 excise tax is levied. The tax generates $6 in total tax revenue based on 1 unit sold at the new equilibrium.

1. MANAGERIAL ECONOMICS:
TUTORIAL #1
Presenters:
Mr. X
Mrs. Y

2. QUESTION 1
The X-Corporation produces a good (called X) that
is a normal good. Its competitor, Y- Corporation,
makes a substitute good that it markets under the
name “Y”. Good Y is an inferior good.

3. (a). How will the demand for good X change if consumer income increase?
Income
•
•
D1
When
income
increases,
the
demand curve for
normal goods shifts
outward as more will
be demanded at all
prices.
Since X is a normal
good; an increase in
income, indicates a
right shift from D1 to
D2
D2
P2
P1
D1
D2
Quantity of Good X

4. (b). How will the demand for Good Y change if consumer income decrease?
Income
•
•
D1
An inferior good
increase in demand
when
consumer
income decrease.
Since Y is a inferior
good; a decrease in
income, indicates a
right shift from D1 to
D2
D2
P1
P2
D1
D2
Quantity of Good X

5. (c). How will the demand for good X change if the price of good Y decreases?
Price of Good Y
•
D2
D1
P1
P2
D2
When the price of a
substitute good Y
decreases,
the
quantity demanded
for good X also
decreases.
Therefore
the
demand curve for
good X will shift to
the left.
D1
Quantity of Good X

6. (d). Is good Y a lower-quality product than good X? Explain
•
No. The term inferior good does not mean a lower-quality.
It basically means that both income and demand are
inversely related.
•
For example; Car

7. QUESTION 2
The demand for good X is given by:
Q = 1200 – Px/2 + Py/4 – 8Pz + M/10
Research shows that the prices of related goods are
given by Py= $5,900 and Pz= $90, while the average
income of individuals consuming this product is M=
$55,000.

8. (a). Indicate whether goods Y and Z are substitutes or complements for good X.
Good Y is a substitute for X, while good Z are complement for X.
(b). Is X an inferior or a normal good?
X is a normal good.
(c). How many units of good X will be purchased when Px= $4,910??
Q = 1,200 – $4,910/2 + $5,900/4 – 8 x $90 + $55,000/10 = 5000 units

9. (d). Determine the demand function and inverse demand function for good X.
Graph the demand curve for good X.
Q = 1200 – 0.5 Px = 1475 - 720+ 5,500
= 7455 – ½ Px
½ Px = 7466-Qx
Px = 14,910-2Qx
Price
14,910
7455

10. Question 3
(Refer to question 2 of page 66 from ME textbook)
• Good X is produced in a competitive market
using input A. Explain what would happen to the
supply of good X in each of the following
situations:
A) The price of input A increases
B) An excise tax of $1 is imposed on good X
C) An ad valorem tax of 5% is imposed on good X
D) A technological change reduces the cost of producing
additional units of good X.

11. Question 3
(Refer to question 2 of page 66 from me textbook)
A) The price of input A increases
 Cost of producing good X
increases
 Supplier is less willing to
produce more.
Price
S1
S0
 Therefore, supply of good
X will decrease.
 Supply curve of good X
will shift to the left.
Quantity of Good X

12. Question 3
(Refer to question 2 of page 66 from me textbook)
B) An excise tax of $1 is imposed on good X
Price
 Supplier is willing to
supply the same quantity
of good X when he
receives additional $1 per
unit of good X.
$1
S0 + t
S0
 Selling price per unit + $1
excise tax.
 Supply curve will shift
vertically up by exactly $1
for each output level.
Quantity of Good X

13. Question 3
(Refer to question 2 of page 66 from me textbook)
C) An ad valorem tax of 5% is imposed on good X
Price
 Supplier is willing to supply
the same quantity of good X
when the unit price of
production goes up by 5%.
S0 x 1.05 t
S0
 Selling price per unit x 5%
ad valorem tax.
 Supply curve will rotate
counterclockwise. The new
curve will shift farther away
from original curve when
the price increases.
Quantity of Good X

14. Question 3
(Refer to question 2 of page 66 from me textbook)
D) A technological change reduces the cost of producing
additional units of good X
Price
 Supplier is willing
produce more.
to
S0
S1
 Supply of good X will
increase.
 Supply curve will shift to
the right.
Quantity of Good X

15. QUESTION 4
(Refer to question 7 of page 67 from me textbook)
• Suppose demand and supply are given by
QDX = 7 – ½ PX and QSX = ¼ PX – ½
A) Determine the equilibrium price and quantity. Show
the equilibrium graphically.
B) Suppose a $6 excise tax is imposed on the good.
Determine the new equilibrium price and quantity.
C) How much tax revenue does the government earn
with the $6 tax?

16. QUESTION 4
(Refer to question 7 of page 67 from me textbook)
Determine the equilibrium price and quantity.
equilibrium graphically.
Show the
Market equilibrium occurs when market supply intersects
with market demand
QDX
=
QSX
7 – ½ PX
¾ PX
PX
=
=
=
¼ PX – ½
7½
$10

17. QUESTION 4
(Refer to question 7 of page 67 from me textbook)
Using demand equation:
QDX
QDX
QDX
QDX
= 7 – ½ PX
= 7 – ½ (10)
=7–5
= 2 units
Equilibrium price = $10
Equilibrium quantity = 2 units

18. Question 4
(Refer to question 2 of page 67 from me textbook)
Price
20
Supply
PX = 2 + 4Qs
18
16
14
12
Equilibrium
10
8
6
4
Demand
2
0
1
2
3
4
5
6
7
Quantity of
Good X

19. QUESTION 4
(Refer to question 7 of page 67 from me textbook)
B) Suppose a $6 excise tax is imposed on the good. Determine the new
equilibrium price and quantity.
Price
Supply equation without tax:
PX = 2 + 4QS
So + t PX = 8 + 4Qs
So PX = 2 + 4Qs
20
18
16
14
Supply equation with tax:
PX = 2 + 4QS + 6
PX = 8 + 4QS
So, QS = ¼ PX - 2
12
10
8
6
4
2
0
1
2
3
4
5
6
7
Quantity of Good X

20. QUESTION 4
(Refer to question 7 of page 67 from me textbook)
• To calculate new equilibrium price and quantity:
QDX
QSX
7 – ½ PX
¾ PX
PX
QDX
QDX
=
=
=
=
=
7 – ½ PX
¼ PX – 2
¼ PX – 2
7+2
$12
=
=
7 – ½ (12)
1 unit
New equilibrium price = $12
New equilibrium quantity = 1 unit

21. QUESTION 4
(Refer to question 7 of page 67 from me textbook)
C) How much tax revenue does the government earn with
the $6 tax?
Unit sold after tax
=
1
Tax
=
$6
Therefore,
Tax revenue
Tax revenue
=
=
1 x $6
$6