Name :Nguyn Xun Trung ID student: BA60028 Class: BA0663 Subject: Basic Microeconomics

Invididual assignement 2
1. Consider the market for last generation mobil phones in Spain. Demand is equal to: Qd= 500 2P. Supply equal to: Qs = 3P a. Show the market equilibrium in a graph. What are the equilibrium price and quantity?

The equilibrium price and quantity We have: 500-2P=3P P= 100 => Q= 300 Equilibrium point is (300; 100) With the equilibrium price is 100 euros and the equilibrium quantity is 300 mobil phones

b) The government introduces a subsidy equal to 50 euros to buy a mobil phone. Which curve is affected by this policy? What are the after-subsidy price and quantity in the market? The government introduces a subsidy equal to 50 euros to buy a mobil phone. Therefore, there is an increasing in supply. Thus, the supply curve is affected by this policy and shifts to the right from S to S

We have Qs=3p => P=Qs/3 if P decrease 50 it mean P=Qs/3-50. Therefore we have new Qs=3P+150 New Equilibrium is Qs=Qd => 3P+150=500-2P => P=70 and we also have Qd=360 Thus, the after-subsidy price in the market is 70 euros The after-subsidy quantity in the market is 360 mobil phones

c.

Going back to the initial equilibrium in point a, assume that government introduces a price ceiling of 80 euros. What could motivate this policy? What effect will introduce?

When the government introduces a price ceiling of 80 euros according graph above we have Qd=500 - 280= 340 (unit) and Qs= 3 80 = 240 (unit) according the graph above, the government imposes a price ceiling of 80 euros. Because the price ceiling is below the equilibrium price 100 euros, the market price equal 80 euros. At this price, 340 mobile phones are demanded and only 240 are supplied, we have Qd Qs= 340 240 =100, so there is a shortage 100 mobile phones. A price ceiling that is binding. They want to protect consumer.

d.

Going back to the initial equilibrium in point a, assume that government introduces a price floor of 120 euros. What could motivate this policy? What effect will introduce?

The government introduces a price floor of 120 euros. We have Qd = 500 - 2120=260 (mobile phones) and Qs=3120=360 mobile phones Qd Qs= 360 260 = 100 (mobile phones) The government imposes a price floor of 120 euros, which is above the equilibrium price of 100 euros. Therefore, the market price equals 120 euros, at this price floor, 360 mobile phones are supplied and only 260 mobile phones are demanded, so there is a surplus of 100 mobile phones. The price floor binding. They want to protect producer.

2. Federica has a given budget that she can use to buy either book or CDs. At most, she can buy 10 CDs or 30 books. Draw her budget constraint (with books in the horizontal axis). What is relative price (Pbook/PCD)? What is the opportunities cost of an additional book in term of CDs?

Rates of the two goods book and CDs are also the magnitude of the slope the budget line. The slope of the budget constraint by the height divided by the length of the vertical axis on the horizontal axis and also the ratio between the Pbook and PCD price

according the graph above we have relative price

Pbook 10 1 Pcd 30 3

So when Federica buy one more a book shemust to reduce 1/3 the unit of CDs

3. Using the graph shown, in which the vertical distance between points A and B represents the tax in the market, answer the following questions.

p rice

S 11 A

8 6 B

6000

8000

q u a n tity

a. Equilibrium price was $8 and equilibrium quantity was 8,000 units. b. Amount of the tax is $5. c. The tax Buyers will pay $3. d. The tax Sellers will pay $2. e. the equilibrium makes equality tax burden between buyer and seller where tax for sellers and buyers is a same. It is $2.5