Managerial Economics-

Supply and Demand

1. The X- Corporation produces a good (called X) that is a normal good. Its competitor Y-corp.
makes a substitute good that it markets under the name Y. Good Y is an inferior good.
# Question Answer Key
How will the demand for good X change if
A Demand for good X decreases
consumer income decreases?
How will the demand for good Y changes if
B Demand for good Y decreases
consumer incomes increase?
How will the demand for good X change fi Price of good Y increases, demand for
C
the price of good Y increases? good X increases
Is good Y a lower-quality product than Not necessarily. It depends on the
D
good X? Explain. preference of the consumer

2. 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.
# Question Answer Key
A The price of input A decreases 𝑃𝐴 ↓ 𝑄𝑆 ↑
B An excise tax of $3 is imposed on good X 𝑇 ↑ 𝑄𝑆 ↓
An ad valorem tax of 7% is imposed on
C 𝑇 ↑ 𝑄𝑆 ↓
good X
A technological change reduces the cost
D 𝐶𝑜𝑠𝑡 ↓ 𝑄𝑆 ↑
of producing additional units of good X

𝑆
3. Supposed the supply function for product X is given by 𝑄 𝑋 = −30 + 2𝑃𝑥 − 4𝑃𝑧
# Question Answer Key
How much of product X is produced when If 𝑃𝑥 = $600 𝑃𝑧 = $60?
A 𝑆
𝑃𝑥 = $600 𝑃𝑧 = $60? 𝑄 𝑋 = −30 + 2(600) − 4(60) = 930
If 𝑃𝑥 = $80 𝑃𝑧 = $60?
How much of product X is produced when 𝑆
B 𝑄 𝑋 = −30 + 2(80) − 4(60) = -110
𝑃𝑥 = $80 𝑃𝑧 = $60?
There is no product supplied
If 𝑃𝑧 = $60?
𝑆
𝑄 𝑋 = −30 + 2𝑥 − 4(60)
Supposed 𝑃𝑧 = $60. Determine the supply
C function and inverse supply function for = -270 + 2(Px)
1 𝑆
good X. Graph the inverse supply function Inverse Supply Function: 𝑃𝑥 = 135 + 2 (𝑄 𝑋)
If x = 0, Px = 135
If x = 30, Px = 150
 𝑑 1 1
4. The demand for good X is given by 𝑄 = 6000 + 𝑃𝑥 − 9𝑃𝑧 + 𝑀. Research shows that the prices
𝑥 2 10
of related goods are given by Py = $ 6,500 and Pz= $100, while the average income of
individuals consuming this product is M= $70,000.
# Question Answer Key
Indicate whether goods Y and Z are (-) X and Y are complements
A
substitutes or complements for good X (+) X and Y are substitutes
B Is X an inferior or a normal good (+) then X is a normal good
How many units of good X will be 𝑑 1 1
C 𝑄 𝑥 = 6000 + 2 5230 − 9(100) + 10 70000 = 4785
purchased when Px= $5,230
𝑑 1
𝑄 𝑥 = 7400 + 2 𝑃𝑥 Inverse demand function:
𝑑
Px= 14,800 – 2Q 𝑥
𝑑
If 𝑄 = 0, 𝑃𝑥 = 14,800
𝑥
𝑑
If 𝑄 𝑥 = 7,400, 𝑃𝑥 = 0
Determine the demand function and
D inverse demand function for good X.
Graph the demand curve for good X.

5. You are analyzing the market for malunggaay (in bag). The demand and supply function are as follows
Qd= 60 – P
Qx = P - 20
i.Determine the equilibrium price and ii.Graph the market equilibrium accurately (Use
quantity intervals of 5 for x and y years).

Qd= Qs
60 – P + P-20
80 = 2P
P= 40
Substitute to Qd and Qs
Qd = 60 – P = 60-40= 20
Qs = P – 20 = 40 – 20 = 20
iii. Compute and shade the consumer surplus iv. Compute and shade the producer surplus.
Show your solution Show your solution
See shaded part in ii. See shaded part in ii.
1 1
CS = 2 𝐵𝐻 PS = 2 𝐵𝐻
1 1
= 2 (20)(60 − 40) = 2 (20)(40 − 20)
= 200 = 200
v. The government wants to support the vi. What economic problem would this new
malunggay sellers and would like to impose price create?
an incremental change of Php 5. Show the
new price in the graph
See graph in part ii. Surplus
PFloor = Php 45 (supporting sellers)
vii. Compute and shade the lost social welfare (deadweight loss for consumers and producers
only). Show your solution.
(45−35)(20−5)
Lost Social Welfare: 2
= 𝟐𝟓