Mekdela Amba university
College of Business and Economics
Department of economics
Course code Econ1011
Group and Individual assignment (20%)
Submission date 13/06/2024 G.C
Instruction: Show all your necessary steps.
1. The supply and demand for tires in a local tire market are given as QD = 3,200 – 25P and
QS = 15P – 800 Where Q is the number of tires sold weekly and P is the price, in dollars, per
tire. Suppose an improvement in technology of tire production makes them cheaper to produce;
specifically, suppose the quantity supplied drop by 100 at every price. Answer the following
questions:
A) What is the new supply function?
B) What are the new equilibrium price and quantity?
C) Sketch the graph that shows change in the equilibrium price and quantity?
2. Consider the supply and demand for ethanol in small town below, QD = 9,000 – 1,000P and
QS = 2,000P – 3,000 Where Q measures gallons per day and P represents the price per gallon.
A. calculate market clearing price and quantity of ethanol?
B. calculate price elasticity of demand and supply at equilibrium point?
3. The demand for beer in Ethiopia is given by the following equation:
Qd = 700 − 2P − PN + 0.1I, where P is the price of beer, PN is the price of nuts, and I is
average consumer income.
A) What happens to the demand for beer when the price of nuts goes up? Are beer and nuts
demand substitutes or demand complements?
B) What happens to the demand for beer when average consumer income rises?
C) Graph the demand curve for beer when PN = Birr 100 and I = Birr 10, 000.
4. Suppose that the quantity of corn supplied depends on the price of corn (P) and the amount of
rainfall (R). The demand for corn depends on the price of corn and the level of disposable
income (I). The equations describing the supply and demand relationships are Qs = 20R + 100P
and Qd = 4000 − 100P + 10I.
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A) Sketch a graph of demand and supply curves that shows the effect of an increase in rainfall on
the equilibrium price and quantity of corn.
B) Sketch a graph of demand and supply curves that shows the effect of a decrease in disposable
income on the equilibrium price and quantity of corn.
5. Suppose a non-linear market demand function for identical buyers/consumers is given by
Q = 3P0.5Y; where Q is quantity demanded in the market, Y is consumers` income. Then;
A) Calculate price elasticity of demand.
B) Calculate income elasticity of demand.
6. Use the table below to answer the following questions.
Combinations Guns Butter (Kg)
A 160 0
B 120 20
C 80 40
D 40 60
E 0 80
A) If Alex is currently producing 80 kg of butter per period, how many guns is he producing?
Assume that resources are fully utilized.
B) What are the opportunity costs of producing one unit of gun?
C) What are the opportunity costs of one kg of butter?
D) If Alex is currently producing 30 kg of butter, what is the opportunity cost of producing another
20 kg of butter?
E) Is it possible for Alex to produce 120 units of guns and 30 kg of butter?
F) If Alex is producing 60 kg of butter and 30 units of guns, is he fully utilizing her resources?
G) Draw the production possibility frontier for this hypothetical economy.
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