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PROBLEMS & APPLICATIONS
Question1:
Determine the effect upon equilibrium price and quantity sold with the help of demand and supply graphs if the following changes occur in a particular market:
a. If consumers’ income increases and the good is normal what happens to the equilibrium in the supply and demand market? Draw and explain.
Reason:
______________________________________________________________________________
b. If the price of a substitute good (in consumption) increases what happends to the demand of that substitute good. Draw and explain.
Reason:
______________________________________________________________________________
c. The price of inputs used to produce the good increases.
Reason:
______________________________________________________________________________
Question2:
The weekly demand and supply schedules for Jeans(in millions) in a free market are as follows:
|
Price
(dollars
per pair)
|
Quantity demanded
(pairs per week)
|
Quantity
supplied
(pairs per week)
|
|
30
|
130
|
70
|
|
40
|
120
|
80
|
|
50
|
110
|
90
|
|
60
|
100
|
100
|
|
70
|
90
|
110
|
|
80
|
80
|
120
|
|
90
|
70
|
130
|
(a) What are the equilibrium price and quantity?
……………………………………………………………………………………
(b (b) Assume that changes in fashion cause the demand for Jeans to rise by 40 at each price. What will be the new equilibrium price and quantity? Has equilibrium quantity risen as much as the rise in demand? Explain why or why not?
i. ……………………………………………………………………………………
ii. ……………………………………………………………………………………
……………………………………………………………………………………
(c) Now plot the new data in the table below and mark the equilibrium.
|
Price
(dollars
per pair)
|
Quantity demanded
(pairs per week)
|
Quantity
supplied
(pairs per week)
|
|
30
|
|
70
|
|
40
|
|
80
|
|
50
|
|
90
|
|
60
|
|
100
|
|
70
|
|
110
|
|
80
|
|
120
|
|
90
|
|
130
|
Draw the old and new demand and suply curve on the following graph
Question3:
Jana makes wedding flower bouquets and sells them during the wedding season. The figure shows her supply curve of bouquets per week. Use the midpoint method in this problem.
C
a. Calculate the price elasticity of supply using midpoint method between points A andB
________________________________________________________________________________
b. Calculate the price elasticity of supply using midpoint method between point B & C.
________________________________________________________________________________
c. Is the elasticity of supply same between points A & B, B & C?
Question4: The table below shows the short-run total production of books.
|
Quantity of labor
(workers)
|
Total Product
|
Average Product
|
Marginal Product
|
|
0
|
0
|
|
|
|
1
|
10
|
|
|
|
2
|
24
|
|
|
|
3
|
40
|
|
|
|
4
|
58
|
|
|
|
5
|
73
|
|
|
|
6
|
83
|
|
|
|
7
|
83
|
|
|
|
8
|
80
|
|
|
a. Complete the above table by calculating the average product and marginal product.
b. In the above table the Diminishing Marginal Returns sets in from _______unit of labour (0.5marks)
c. In the above table average product is maximum at ________ unit of labor
d. In the above table when total product is constant the marginal product is ________
e. In the above table when average product is maximum, marginal product starts to _________
(rise/fall)
f. In the above table the total product is maximum at ____________ unit of labour
g. The average product starts to fall at ____________ level of output
h. Draw the total product curve on the below graph.
TOT
A
L
PRODUCT
QUANTITY OF LABOUR
i. Draw the MP and AP curve in the below graph.
Marginal
& average product
QUANTITY OF LABOR
Question5:
The following data table shows the short run costs of running a toy manufacturing company.
|
Output
(Toys)
|
TFC
|
TVC
|
TC
|
AFC
|
AVC
|
AC
|
MC
|
|
0
|
|
|
10
|
|
|
|
|
|
1
|
|
|
18
|
|
|
|
|
|
2
|
|
|
22
|
|
|
|
|
|
3
|
|
|
25
|
|
|
|
|
|
4
|
|
|
27
|
|
|
|
|
|
5
|
|
|
30
|
|
|
|
|
|
6
|
|
|
34
|
|
|
|
|
a. Is the firm operating in short-run or long-run? Why?
__________________________________________________
b. What is the most efficient level of output? Why?
___________________________________________________
c. When MC<AC, AC must be ____________ (rising/falling)
d. The diminishing marginal returns is set in at ______ level of output
e. Draw the TFC, TVC and TC curves in the graph below:
END OF ASSIGNMENT
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