2.

2EXERCISES
1.a). Find the price and quantity of the product that balances the market assuming
that I = 25
Q = 300 - 2P + 425 ( )

Q = 400 - 2P

We equalized to find the quantity and the equilibrium price:

3P-50= 400 - 2P
5P = 450
= 90
We replace to find the equilibrium quantity:

Q = 400 - 2P

Q = 400 - 2(90)

Q = 220

b). Find the price and quantity of the product that equilibrates the market assuming
that I = 50.
Q = 300 - 2P + 4(50)

Q = 500 - 2P

We equate to find the equilibrium quantity and price:

3P-50= 500 − 2
5P = 550
= 110
We replace to find the equilibrium quantity:

= 500 − 2

Q = 500 - 2(110)

Q = 280
c.) Graphically represent your answers.
We solve the inverse functions for both demand and supply:

Q = 400 - 2P = 3P − 50

1 50 1
P = 200 - = +
2 3 3

Quantity Function of Function Function of supply

Q demand of the demand from S:
statement a). statement b). 50 1
1 1 = +
P = 200 - P = 250 - 3 3
2 2
0 200 250 16.67

100 150 200 50

220 90 140 90
280 60 110 110
Eb
400 0 50 150

500 0 183.33

Demand function Da
Supply function s
300
Demand function Db

250

200
S
150
Eb
110
Ea
90

50 Db

0 Yes
100 220 280 300 400 b 500 600
0
 Quantity
2.
Price (dollars) Demanda(millones) Offer (millions)
60 22 14
80 20 16
100 18 18
120 16 20

a. Calculate the price elasticity of demand assuming that the price is 80

dollars and assuming it is 100 dollars.
∆
∆
= = .
∆ ∆

-2 80
= .
20 20

= -0.4

0.4

Similarly, if the price is 100 dollars, the quantity demanded is

equal to 18 million and the price elasticity is:

∆
∆
= = .
∆ ∆

-2 100
= .
20 18

= -0.56

|0.56|

RESPONSE: 0.56

b. The data in the table indicates that with each increase in price of 20 dollars,
the quantity supplied increases by 2 million. If the price is 80 dollars, the
the quantity supplied is 16 million and the price elasticity of supply is:
 ∆
∆
= = .
∆ ∆

2 80
= .
20 16

0.5

If P=100 and Q=18, then:

∆
∆
= = .
∆ ∆

2 100
= .
20 18

0.56

ANSWER: = 0.56

c. ¿Cuáles son el precio y la cantidad de equilibrio?

ANSWER: The price and the equilibrium quantity are found at the point
in which the quantity supplied is equal to the quantity demanded at the same price. As
we can see in the table, the equilibrium price is P*=100 and the quantity of
equilibrium is Q*=18 million

d) Suppose the government sets a price ceiling of 80 dollars. Will there be a shortage?
and, if so, how much?

ANSWER: With a maximum price of P=80, the market cannot reach its
equilibrium, consumers would like to buy 20 million, but producers
they will only supply 16 million. This will result in a shortage or
excess demand of 4 million.

3. The equations describe the wheat market in 1998:

= 1944 + 207P
= 3244 - 283P
 ➢ Brazil and Indonesia add another 200 million tons of wheat to the
U.S. wheat demand, the new demand curve would be equal to:
= (3244- 283P + 200
)

= 3444 - 283P

➢ We equalized the offer and the new demand:

3444 - 283P = 1944 + 207P
3444 - 1944 = 283P + 207P
1500 = 409P

3.06 = P

➢ We replace:
1500
= (3444- 283( ))
490

42450
= (3444− ( )
49

2577.67

RESPUESTA: El precio de libre mercado del trigo es $3.06 y la cantidad

produced and sold by American farmers is 2577.67.

4. PRICE U.S. Offer U.S. Demand

millions of pounds (millions of pounds)
3 2 34
6 4 28
9 6 22
12 8 16
15 10 10
18 12 4
 a). ¿Cuál es la ecuación de la demanda? ¿Y la de la oferta?

The demand equation is of the form:

= −
➢ First of all, we find the slope, which is:
∆P = 3(Given that the price gradually increases with this value)
∆ = -6(As demand consistently falls by 6 million in parallel
that the price goes up)
∆ -6
= = −2
∆ 3

− = -2

➢ Therefore, the demand remains:

Qd = a - 2P
34 = a - (2.3)

= 40

RESPUESTA:La ecuación de la demanda esQd = 40 - 2P

The supply equation is of the form:

= −
➢ First, we find the slope, which is:
∆P = 3Given that the price gradually increases with this value
∆ = 2(Since the supply increases steadily by 2 million in parallel)
the price goes up)
∆ 2
=
∆ 3
2
=
3
➢ Therefore, the offer remains:
 2
= +
3
2 = − (32)3

c=0

2
ANSWER: The supply equation is =
3

b). At a price of 9 dollars, what is the price elasticity of demand? And at

a
price of 12 dollars?
∆
%∆
= =
%∆ ∆

➢ Regarding the previous price of $9, it increases by $3, therefore:

∆P = 3

∆ = -6

➢ For a demanded quantity Q=22 and price P=9

-6
= 22
3
9
−9
=
11
= −0.82
➢ Regarding the previous price of $12, it increases by $3, therefore, ΔP=3
and given that, with the increase in price, demand falls by $6 (in
millions), therefore, ΔQ=-6, for a demanded quantity Q =16 and
price P=12, remaining:
-6
= 16
3
12
-3
=
2
-1.5
 ANSWER: At a price of 9 dollars, the price elasticity of the
demand is 0.82 and at a price of 12 dollars it is1.5

c). ¿Cuál es la elasticidad-precio de la oferta a 9 dólares? ¿Y a 12 dólares?

➢ Regarding the previous price of $9, it increases by $3, therefore, the

ΔP=3 since, with the increase in price, the supply rises by $2 (in
millions), therefore, the ΔQs=2, for a demanded quantity Q =6 and
price P=9, remaining:
∆
= .
∆
9 2
= .
6 3

18
=
18

=1

➢ When P=12, the price elasticity of supply is:

12 2
= .
8 3
24
=
24

=1

RESPONSE: At a price of 9 dollars, the price elasticity of supply

it's 1 and at a price of 12 dollars it is1.

d) In a free market, what will be the price and the level of imports of
fiber from the United States?

ANSWER: Without restrictions on trade, the price in the States

United will be the same as the world price, therefore, P=$9. At this price,
the internal supply is 6 million pounds, while the internal demand is
of 22 million pounds. Imports make up the difference and are from
16 million pounds.
5.a. American farmers are concerned about this decrease in demand.
for export. What happens to the free market price of wheat in
United States? Do farmers have many reasons to worry?
Total demand:Q = 3244 - 283P
Internal demand: = 1700 - 107P
Export demand: (
= 3244-283P - (1700 - 107P) )

= 1544 - 176P

➢ The initial equilibrium price of the market is found by adjusting the

total demand equals supply:
3244 − 283 = 1944 + 207
= 2.65
= 2494.05
➢ If it is assumed that the demand for wheat for export decreases by 40
percent, the total demand becomes:
= + 0.6 Q
Q = 1700 - 107P + 0.6 (1544 - 176P)
= 2626,4 − 212,6
➢ By equating demand with supply, the new price can be obtained.
balance
2626.4 - 212.6P = 1944 + 207P
682.4 = 419.6P
$1,626 =
Resulting Q = 2280.7124
ANSWER; According to what was obtained, farmers should
to worry, since both the price and the quantity demanded fall.

b). Now suppose that the Government of the United States wants to buy enough
wheat to raise the price to 3.50 dollars per bushel. With this drop in the
demand for export, how much wheat would you need to buy? How much would it cost you?

would it cost?

➢ With a price of $3.50, the market is not in equilibrium. The quantity

demanded and supplied are:
 (
= 2626.4 − 212.6 3.5 )

1882.3

(
= 1944 + 207 3.5 )

= 2668.5

➢ The excess supply is:

2668,5 − 1882,3 = 786,2 ℎ
RESPUESTA:El gobierno debe comprar esta cantidad para soportar un
price of $3.5, and will spend:$3.5 (786,2 ) $2,751.7 million
per year.

6.a) If the demand and supply indicated by both the organization and the board
They are correct, what is the free market price? How does the population vary?
the city
if the organism sets an average maximum monthly rent of 300 dollars and everything
Does someone abandon the city if they can't find an apartment?

➢ To find the free market price for the apartments,

we equalized the demand and the supply:

160 - 8P = 70 + 7P
90 = 15P
6=P
➢ Substituting the equilibrium price into the demand or supply equation:
= 160 - (8)(6)
= 112
➢ The number of rental apartments starts from 1,120,000 as Q
measured in tens of thousands of departments.
➢ If the control agency sets the rent rate at $300, the amount
offered is Qs=70+(7).(3)=91, that is Q=910,000, which implies a
decrease of 210,000 apartments from the free equilibrium
market (1,120,000 - 910,000 = 210,000)
➢ If the rental price is $300, the demand for apartments is Qd=160-
(8). (3) = 136, that is Q = 1,360,000 units, and the resulting scarcity is of
450,000 units (1,360,000 - 910,000 = 450,000).
 ➢ However, the excess demand (the scarcity) and lower quantity
demand and supply are not the same concept. The shortage of 450,000 units is
the difference between the number of departments demanded from the new one
lowest price (including the number demanded by the new ones
people who would have to move to the city), and the number offered
at the lowest price.
Q = 160 - 8P = 70 + 7P
0 2000
70 1125 0
88 900 257.14
91 862.50 300
112 600 600
136 300 942.86
160 0 1285.71

1800
1500

1200
S
Balance
900
initial

600
Scarcity Price
300 maximum

D
0
70 88 91 112 120 125 136 140 160
0
Quantity

ANSWER: Therefore, the population will decrease by 630,000, due to the decline.
in the number of available apartments of 1,120,000 (the equilibrium value
initial) to 910,000.
 b). Suppose that the organization submits to the wishes of the board and sets a rent
of 900 dollars a month for all apartments so that the landlords
obtain a "fair" rate of return. If 50 percent of all the
long-term increases in the supply of newly constructed apartments are,
How many apartments are being built?

1800

1500

Excess of
1200
offer S
Price
900
E. Initial maximum

600

300

D
0
70 88 91 112 120 125 136 140 160
0
Quantity

RESPUESTA:Si el alquiler se fija en $900, la demanda de departamentos es de

Qd=160-(8)(9) =88, that is, 880,000 units, which are 240,000 less than the
initial demand for free market apartments (1,120,000-
880,000 = 240,000). Therefore, no new apartments would be built.

7. ANSWER: The demand curve is of the general form Q = a - bP and the curve
The supply is in the general form Q = c + DP. To begin with, the formula for the
price elasticity of demand.

= .

➢ Information is provided about the value of elasticity, P and Q, which means that it
you can solve by the slope, which is B in the previous formula for the curve of
demand
 2
-0.4 = .
23.5 P
23.5
= −0.4.
2

− = -4.7

➢ To find a constant, I substitute Q, P, and B into the previous formula.

So 23.5 = a - 4.7 * 2 and a = 32.9.
➢ Therefore, the demand equation is Q = 32.9 - 4.7P. To find the curve of
offer, it is necessary to remember the formula of the elasticity of supply and it follows the same

method as before:

= .

2
0.5 = .
23.5 P
23.5
0.5
2
= 5,875
➢ To find the constant c, I substitute Q, P, and d into the previous formula so that
23,5 = c + 5,875 * 2 y c = 11,75.
RESPUESTA 2:Por tanto, la ecuación para Oferta es Q = 11,75 + 5,875P

8.a). Assuming, as before, that the equilibrium price and quantity are P*
= 3 dollars per pound and Q* = 18 million metric tons per year, trace the
linear demand curve consistent with this lower elasticity.
= 0.75 (The long-term price elasticity)
The equilibrium price:
∗= 3
The equilibrium quantity:
Q * = 18
Clearing b:
3
-0.75 =− ()
18
= 4,5
To find the point of intersection, we substitute b:
18 = a - (4.5)(3)
 31,5 =
RESPONSE: The linear demand equation consistent with an elasticity
the long-term price is -0.75 therefore
= 31.5 - 4.5P

9.a) Calculate the effect of a 20 percent increase in copper demand.

one hundred in its price using the original elasticities of demand and of the
offer (that is, ES = 1.5 and ED = -0.5)
For this, the obtained supply and demand equations are:
: = -6 + 69P
: = 18 -3P
If the demand increases by 20 percent of the original, then it would be the new
demand as:
= 1,2 (Q)
= 1.2 (18 - 3P)
= 21.6 - 3.6P
Now to establish the equilibrium, the new demand is set equal to the supply:
216.6 - 3.6P = -6 + 9P
12.6P = 27.6
= 2,19
ANSWER: This would increase the price compared to the previous one P=2

b) Now calculate the effect that this increase in demand has on the quantity.
equilibrium, Q*
= 2,47
= 16,23
RESPONSE: The new equilibrium demand grows notably from 12 to
16.23, after the 20% increase.

c). As we pointed out in Example 2.8, the U.S. production of

copper decreased between 2000 and 2003. Calculate the effect it has on the price and
at the equilibrium quantity, an increase in the demand for copper by 20
 percent (as it has done exactly in part a) as a decrease of
the copper supply by 20 percent
(= 18-3P )0.8

So we equate:

14.4 - 2.4P = 9P - 6

= 1,79

= 10

P1= 2
P2= 1,79

D1

D2

Q2= 10 Q1= 12

ANSWER: The demand this time has shifted to the left,

given that there was a 20% reduction, causing demand to decrease
from 12 to 10 units.

10.a). Demonstrate that the short-run demand and competitive supply curves
are really given:
= -0.05
= 0,05
= 50
= 35

50
= -0.05 =a ( ) = ( )
35
= -0.03
If a=-0.03
= 34= −
-0.03 = a - 0.035 50 ( )
= 35.5
Then the equation remains:
= 35.5 − 0.03P

Yes = -0.05
0.10
= 20
= 50
50
= 0.10= ( ) = ( )
20
= 0.04
RESPUESTA:Entonces la ecuación queda: Qs=18+0.04 P

b). Show that the demand and supply curves in competitive long-run equilibrium
they are really given by:

= -0.30
= 0.30
= 50
Q = 35

50
=− 0,30 = ( ) = ( )
35
= -0.27
If a=-0.27
= 34= −
-0.27 = a - 0.27 50 ( )

a = 47.5

Then the equation is:

= 35.5 - 0.03P

Yes: -0.05
0.10
= 20
= 50
50
= 0.10= ( ) = ( )
20
= 0.04
RESPUESTA:Entonces la ecuación queda: Qs=18+0.04 P
 c). In Example 2.9 we have examined the effect produced by an interruption.
of Saudi Arabia's oil supply on the price. Assume that, instead of
decrease the supply, OPEC production increases by 2 billion
barrels per year (mmb/a), because the Saudis are opening large fields of
oil. Calculate the effect that this increase in production has on supply
of oil both in the short term and in the long term.

= -0.05 = 0.15 P = 50 = 35
50
= 0.10 =d( ) = ( )
20
= 0.04
If: a=0.04→Qd=36=c+dP=c−0.04 (50) →c=34
RESPUESTA:Qd=34+0.04 P

11.a). Using the data from the example, demonstrate that the following supply curves
and demand describes the natural gas market situation in 2005-2007:
: = 15.90 + 0.72 + 0.05
: = 0,02 − 1.8 + 0.69

: = 0.2 = 0.1 -0.5 = 1.5 Y Q = 23

Taking into account that:
= − +
= + +

Also check that if the price of oil is 50 dollars, these curves

imply that the free market price of natural gas is 6.4 dollars.
DEMAND
6.40
-0.5 = b ( ) = ( ) -1.8
23
50
= 1.5 = d ( ) = ( ) 0.69
23
Yes a - 1.8P + 0.69P
( + )0.69 50 ( )
23 = a - 1.86.40
= 0,02
= 0.02 - 1.8P + 0.69P

OFFER
6.40
= 0.2 = d ( ) = ( ) = 0.72
23
50
= 0.1 = n ( ) = ( ) = 0.05
23
Yes c + 0.72 + 0.05P
23 = + 0,72(6,40) + 0,05(50)
c=15,90
= 15.90 + 0.72 + 0.05P
 b). Suppose that the regulated price of gas was 4.50 dollars per thousand cubic feet
instead of 3.00. How much excess demand had there been?
= 4.50
Demand: -1.78 + 0.69P
= 0.02 - 1.8(4.50) + 0.69(50)
26.42
Offer: = 15,90 + 0,72 + 0.05P

= 15.90 + 0.72(4.50) + 0.05(50)

21.64
− = 26.42-21.64
= 4.78
RESPUESTA:Existiría escasez de 4,78

c) Suppose that the natural gas market had not been regulated. If the price of
if oil had risen from 50 to 100 dollars, what would have happened to the price of
free market of natural gas?

= 100
Demand: = 0,02 − 1,8 + 0.69P
= 0.02 - 1.8(6.40) + 0.69(100)
= 57.5
Offer: = 15,90 + 0,72 + 0.05P

= 15,90 + 0,72(6,40) + 0,05(100)

= 25,508
− 57.5− 25,508
31.90
RESPUESTA:Existiría escasez de 31,90

12.
Year Wholesale Price of Coffee Wholesale Price of
lesser of instant coffee minor of coffee
instantaneous (millions of coffee Torrefacto
(per pound) libras Torrefacto (millions of
($per pound) Libras
Year 1 10.35 75 4.11 820
 Year 2 10,48 70 3.76 850

a). Based solely on this data, estimate the price elasticity of the
short-term demand for roasted coffee:
%
( ) = | |
%
Percentage change in the quantity demanded:
Q2 - Q1
= X 100
Q1
850 − 820
= X 100
820
= 3.65

Percentage change in price:

P2 - P1
= X 100
P1
850 − 820
= X 100
820
= 3.65
Therefore, the price elasticity of demand is:
EPD=| 3.65 −8.51|
EPD=|−0,42|
EPD=0.42
To create the graph, we first find the demand equation: Q−Q1=m( P−P1)
First, we will find the slope:
∆Q
=
∆P
850 − 820
=
3.76 − 411
m = -85.71
We replace:
Q - 820 = -85.71(P - 4.11)
Q - 820 = -85.71P + 352.28
= 1172.28 - 85.71P

b) Now estimate the short-term price elasticity of demand for coffee

instantaneous.

%
( ) = | |
%
Percentage change in the quantity demanded:
 Q2 - Q1
= X 100
Q1
70 - 75
= X 100
10
-6.66

Percentage change in price:

P2 - P1
= X 100
P1
10,48 − 10,35
= X 100
10.35
= 1.25
Therefore, the price elasticity of demand is:
EPD=|-6,66 |
1,25
EPD=|−5.32|
EPD=0.42
To create the graph, we first find the demand equation: Q−Q1=m(P−P1)
First we will find the slope:
∆Q
=
∆P
75 − 70
=
10,35 − 10,48
= −38,461
We replace:
Q - 70 = -38.461(P - 10.48)
Q - 70 = -38,461P + 403.07
= 473.07 - 38.46P

c) Which coffee has the highest short-term price elasticity of demand? Why?
What do you think it is like?
The demand for instant coffee is significantly more elastic than that for coffee.
toasted. In fact, the demand for toasted coffee is inelastic and the demand for coffee
Instant coffee is very elastic. Roasted coffee may have inelastic demand.
in the short term, because many people consider coffee as a necessary good.
Changes in the price of roasted coffee do not significantly affect the
amount demanded because people want coffee. Many people, for the
On the contrary, one may view instant coffee as convenient, though imperfect.
substitute for roasted coffee. For example, if the price goes up a little, the quantity
demand will fall significantly, because people prefer to drink coffee
toasted instead of paying more for a substitute that you consider to be of lesser quality.
16

14
Roasted coffee: P=13.67-0.01167Q
12
Instant coffee: P=12.3-0.026Q
10

8
6

0
0 200 400 600 800 1000 1200 1400

Quantity