True or False

1. Leakages in the circular flow of goods and services include saving, taxes and imports while inflows are investments, government expenditures and exports.

2. A change in demand refers to the movement of demand curve along the curve brought about by the change in the price of the good demanded.

3. The expectation of buyers to price change has a direct effect to quantity supplied of the good.

4. Market equilibrium exists when the Qd = Qs of the commodity in the market.

5. Price elasticity of demand is elastic, when the %change in price is greater than the %change in quantity demanded.

1. Multiple Choice.

1. Part of the households' income that is paid to government is known as (tax, saving, import good).

2. (Price of the complement good, Price expected to change, Number of buyers) is indirectly or inversely related to the price of the good demanded.

3. If the price of producing computer printer increases, sellers quantity supplied (ceteris paribus) will (increase, decrease, remain the same).

4. There is market (shortage, surplus, equilibrium) when Pg = 7 at the Qd = 21 - 2Pg and Qs = 2 + 1Pg.

5. The commodity is said to be normal good when the income elasticity is (positive, negative, zero).

1. Problem Solving.

Suppose the individual demand equation for bananas is Qd = 24 - 2P g and the individual supply equation is expressed as Qs = 3 + 1P g .

a. Tabulate the Market Schedule (Demand and Supply Schedule) using the market prices, Pg 0, 1, 2, 3, 4, 5, 6, 7, 8, 9, 10 and 11, respectively

b. Graph the demand and supply curves using the y-axis as the Pg and x-axis as the Economics 2A - Price Theory: Basic Microeconomics 44 Quantity, Qd /Qs

c. Determine the equilibrium point, eo graphically and mathematically (Qd = Qs). What is the Equilibrium Price, Pe _____ and Equilibrium Quantity, Qe _______

d. Identify the areas of Market Shortage and Market Surplus.