ECON10004: INTRODUCTORY MICROECONOMICS
TASKS FOR TUTORIAL 3
(Week beginning August 11th)
TASK 1
Assume that there are two distinct products: eyeglasses and contacts. Both products correct
vision.
a) Suppose that a news article goes viral in Australia that suggests that contacts can cause
blindness. What is the likely effect of this story on the price and quantity of contacts
consumed in Australia?
b) What is the likely effect of this new story on the price and quantity of eyeglasses in
Australia?
TASK 2
A linear demand curve for electric cars is equal to:
QD = 24 – 2P
A linear supply curve for electric cars is equal to:
QS = 4P
a) Find the equilibrium price and quantity
b) An increase in consumer preferences for electric cars shifts the demand curve (the slope
doesn’t change). Show how this shift would occur on the same graph as the original
demand curve.
c) Find the new equilibrium price and quantity if the demand’s Q-intercept increases to 36.
d) Discuss what happens to equilibrium price and quantity in the following scenarios:
i. A new oil discovery reduces the price of fuel
ii. A new government policy introduces tax incentives to buy electric cars
e) What happens to equilibrium price and quantity if the slope of the supply curve gets
steeper?
TASK 3 (Practice Multiple Choice)
3.1 The market for wine is perfectly competitive. An increase in the incidence of disease in
wine grapes, and an increase in the price of beer (a substitute for wine) occur. (Assume
that the disease destroys some grapes, but does not affect the quality of the surviving
grapes.) The effect on the market for wine will be:
A. A decrease in supply of wine, and a decrease in demand for wine.
B. A decrease in equilibrium quantity traded of wine, and it is not possible to say
what will happen to equilibrium price.
C. An increase in supply of wine, and an increase in demand for wine.
D. An increase in equilibrium price, and it is not possible to say what will happen to
equilibrium quantity traded.
3.2 Microchips are an input to computer hardware. Both microchips and computer hardware
are traded in perfectly competitive markets. An improvement occurs in efficiency of
production of microchips. The effects on the markets for microchips and computer
hardware will be:
A. An increase in the equilibrium price of microchips, and an increase in the
equilibrium price of hardware.
B. An increase in the equilibrium quantity traded of microchips, and a decrease in
the equilibrium quantity of hardware traded.
C. A decrease in the equilibrium price of microchips, and an increase in the
equilibrium quantity of hardware traded.
D. A decrease in the equilibrium quantity of microchips, and a decrease in the
equilibrium quantity traded of hardware.
