Section On Topic (1)

Economics 213
Section on topic (1)
Dr. Mahmoud A. Arafa

Assistant Professor of Agricultural Economics, Cairo University
mahmoudara@gmail.com
The following is a list of Nominal Gross Domestic
Product (NGDP) in five different countries along with
their Price Level (P). For which country is the Real Gross
Domestic Product (RGDP) will decrease? Use year 2023
as the base year in your answer.
increase ‫في بعض النسخ مكتوبة‬

Year
2022 2023
NGDP P NGDP P
Argentina 37 121 32 97
Egypt 42 98 45 89
Italy 61 157 78 177
Spain 53 143 57 169
USA 25 100 33 103
𝑷𝒏 𝑵𝒐𝒎𝒊𝒏𝒂𝒍𝑮𝑫𝑷
Deflator = , and RGDP =
𝑷𝟎 𝑫𝒆𝒇𝒍𝒂𝒕𝒐𝒓
D, 2022 D, 2023
Year Deflator Deflator
2022 2023 2022 RGDP,2022 RGDP,2023
2023
NGDP 𝑷𝒏 NGDP 𝑷𝟎 Pn/Po Pn/Po NGDP/D NGDP/D
Argentina 37 121 32 97 1.25 1 29.6 32
Egypt 42 98 45 89 1.101 1 38.143 45
Italy 61 157 78 177 0.887 1 68.771 78
Spain 53 143 57 169 0.846 1 62.636 57
USA 25 100 33 103 0.971 1 25.750 33
Homework
Reuse the above data. For which country is the Real
Gross Domestic Product (RGDP) will decrease or
increase? Use year 2022 as the base year in your answer.
For the functions: Qd=120–P, and Qs = 5P
The equilibrium price and quantity are respectively
A) 100 and 20
B)120 and 20
C) 20 and 100
D) 20 and 120
If P = $15, which of the following is true?
A)There is a surplus equal to 30.
B)There is a surplus, but it is impossible to determine how large
C) There is a shortage equal to 30.
D)There is a shortage, but it is impossible to determine how
large.
If P = $25, which of the following is true?
A)There is a surplus equal to 30.
B)There is a surplus, but it is impossible to determine how large
C) There is a shortage equal to 30.
D)There is a shortage, but it is impossible to determine how
large.
For the functions; Qd=100–5P, and Qs = 30+5P. At which
point the equilibrium will occurs?
A) P=5 and q=65
B) P=7 and Q=70
C) P=5 and q=75
D) P=7 and q=65
For the functions; Qd=100–5P, and Qs = c+5P. Use
equilibrium price equal to 7. which value of “c” the
equilibrium will occurs?
A) c=30
B) c=100
C) c=20
D) c=70
For the functions; Qd=100–5P, and Qs = 30+dP. Use
equilibrium price equal to 10. which value of “d” the
equilibrium will occurs?
A) d=2
B) d =
70−5𝑃 ‫مالحظة هامة هنا‬
𝑃
C) d=20
D) d=10
Illustrate using graphs and select the right
answer.
In case of Normal good, If both Income & production
cost increase, then Market equilibrium shifting to …
A)Up
B)Down
C)Right
D)Left
answer.
In case of inferior good, If both Income & production
cost increase, then Market equilibrium shifting to …
A)Up
B)Down
C)Right
D)Left
answer.
In case of Normal good, If both Income & production
cost fall, then Market equilibrium shifting to …
A)Up
B)Down
C)Right
D)Left
Illustrate
Illustrateusing
usinggraphs
graphsand
andselect
selectthe
theright
right
answer.
answer.
If price of substitute increases & number of producers
increase, then Market equilibrium shifting to …
A)Up
B)Down
C)Right
D)Left
Illustrate
Illustrateusing
usinggraphs
graphsand
andselect
selectthe
theright
right
answer.
answer.
If price of Complement increases & technology
increases, then Market equilibrium shifting to …
A)Up
B)Down
C)Right
D)Left
Problem
For the demand function: Q𝒅𝒙 = 𝟏𝟐 − 𝟐𝑷
Derive:
(a) the individual’s demand [schedule/table],
(b) the individual’s demand curve, and
(c) What is the maximum quantity this individual will
ever demand of commodity X per time period?
The maximum
quantity of this
commodity that
the individual
will ever demand
per unit of time is
12 units
Example: Table below gives two demand schedules of
an individual for commodity X. The second (Qd` x)
resulted from an increase in the individual’s money
income (while keeping everything else constant),
(a) Plot the points of the two demand schedules on the
same set of axes and get the two demand curves,
(b) What would happen if the price of X fell from $5 to $3
before the individual’s income rose?
Answer: 30
When the price of X falls from $5 to $3 before the

individual’s income rises, the quantity of X demanded by the
individual increases from 20 to 30 units per time period.
(This is movement along dx in a downward direction, from
point A to point B in the figure.)
(c) At the unchanged price of $5 for
commodity X, what happens when
the individual’s income rises?
Answer:
(c) When the individual’s income rises, that person’s entire
demand curve shifts up and to the right from dx to 𝑑 𝑥.ҧ This is
referred to as an increase in demand. At the unchanged price of
$5, the individual will now (i.e., after the shift) buy 40 units of
X rather than 20 (i.e., the individual goes from point A to point
C).
(d) What happens if the price of X falls from $5 to $3
and the individual’s money income rises at the same
time?
Answer:
When the individual’s income rises while the price of X
falls (from $5 to $3), the individual purchases (65 units
of X) or 35 additional units of X (i.e., the individual
goes from point A to point D).
(e) What type of good is commodity X? Why?
Answer:
`
Since dx, shifted up (to d x) when the individual’s
income rose, commodity X is a normal good for this
individual.
Income ➔demand ➔Normal Good

Example
Use supply and demand curves to illustrate how

each of the following events would affect the price of
butter and the quantity of butter bought and sold
a. An increase in the price of margarine.
b. An increase in the price of milk.
c. A decrease in average income levels.
Example
Suppose the demand curve for a product is given by

Qd = 300 – 2P + 4I, where I is average income
measured in thousands of dollars. The supply curve
is Qs = 3P – 50.
Qd = 300 – 2P + 4I and Qs = 3P – 50
a)If I = 25, find the market clearing price and

quantity for the product.
Given I = 25, the demand curve becomes Qd = 300 - 2P
+ 4(25), or Qd = 400 - 2P. Setting demand equal to
supply we can solve for P and then Q: 400 - 2P = 3P -
50 ➔ P* = 90 and Q* = 220.
Qd = 300 – 2P + 4I and Qs = 3P – 50
b) If I = 50, find the market clearing price and

quantity for the product.
• Given I = 50, the demand curve becomes Q = 300 - 2P
+ 4(50), or Q = 500 - 2P. Setting demand equal to
supply we can solve for P and then Q: 500 - 2P = 3P -
50 ➔ P = 110 and Q = 280
Homework
c) Draw a graph to illustrate your answers.
Example
A vegetable fiber is traded in a competitive world

market, and the world price is $9 per pound.
Unlimited quantities are available for import into
the United States at this price. The U.S. domestic
supply and demand for various price levels are
shown as follows: What is the equation for demand?
What is the equation for supply?
Price U.S. Supply U.S. Demand
(Million Lbs.) (Million Lbs.)
3 2 34
6 4 28
9 6 22
12 8 16
15 10 10
18 12 4
Answer
The equation for demand is of the form Q = a − bP.
First find the slope “b ” , which is
You can figure this out by noticing that every time price
increases by 3, quantity demanded falls by 6 million pounds.
Demand is now Q = a -2P.
Answer
To find “a ”, plug in any of the price and quantity demanded
points from the table.
For example: Q = 34 = a - 2(3) so that a = 40 and demand is
Q = 40 - 2P.
The equation for supply is of the form Q = c + dP. First find
the slope, which is
Answer
You can figure this out by noticing that every time price
increases by 3, quantity supplied increases by 2 million
pounds. Supply is now
To find c, plug in any of the price and quantity supplied

points from the table. For example:
so that c = 0 and supply is
Homework
• Table below gives two supply schedules of a producer of commodity X.
The second (Qs`x) resulted from an increase in the prices of the inputs
necessary to produce commodity X (everything else remained constant).
(a) Plot the points of the two supply schedules on the same set of axes and
get the two supply curves. (b) What would happen if the price of X rose
from $3 to $5 before the shift in supply? (c) What quantity of commodity
X will the producer place on the market at the price of $3 before and
after the supply curve shifted up? (d) What happens if at the same time
the producer’s supply of X decreases, the price of X rises from $3 to $5?
Homework
• The values in Table below refer to the change in an
individual’s consumption of coffee and tea at home
when the price of coffee rises (everything else,
including the price of tea, remains the same). (a) Draw
a figure showing these changes, and (b) explain the
figure drawn
Homework
• The values in Table below refer to the change in an
individual’s consumption of lemons and tea at home
when the price of lemons rises (everything else,
including the price of tea, remains the same). (a) Draw
a figure showing these changes, and (b) explain the
figure drawn
Homework
• From the specific supply function Qsx = 20P, derive
(a) the producer’s supply schedule and (b) the
producer’s supply curve. (c) What things have been
kept constant in the given supply function? (d) What is
the minimum price that this producer must be offered
in order to induce him or her to start supplying
commodity X to the market?
Homework
All MCQ questions
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Section On Topic (1) - Supply-Demand Model

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Economics 213

Dr. Mahmoud A. Arafa

increase ‫في بعض النسخ مكتوبة‬

When the price of X falls from $5 to $3 before the

Income ➔demand ➔Normal Good

Use supply and demand curves to illustrate how

Suppose the demand curve for a product is given by

a)If I = 25, find the market clearing price and

b) If I = 50, find the market clearing price and

A vegetable fiber is traded in a competitive world

To find c, plug in any of the price and quantity supplied

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