This document provides study material for economics, including solved assignments and essays. It covers topics such as production possibilities frontier, demand and supply curves, price elasticity of demand, and more. The content is relevant for economics courses at various universities.
Contribute Materials
Your contribution can guide someone’s learning journey. Share your
documents today.
Running head: ECONOMICS Economics Name of the Student Name of the University Course ID
Secure Best Marks with AI Grader
Need help grading? Try our AI Grader for instant feedback on your assignments.
2ECONOMICS Question 1 Question a 01002003004005006007008009001000110012001300140015001600170018001900 0 170 340 510 680 850 1020 1190 1360 Production Possibilities Frontier (PPF) Semillon Semillon Chardonnay Figure 1: Production Possibilities Frontier for ECON Wines Question b Figure 2: Efficient production combination on PPF The production combination of 900 cases of Semillon and 680 cases of Semillon Chardonnay is on the PPF and shown as F. As the production point is on the PPF, this shows an efficient production point (Cowell, 2018).
3ECONOMICS Question c Natural calamities like drought destroys economic resources. The destruction of resources hamper production of all the goods in the economy. The lower availability of resources to all industry reduces output and shifts the PPF inward. Question d Figure 3: Market for Semillon Wine The above describes the entire market of Semillon wine. The demand for Semillon wine is given by DD and the supply of Semillon wine is given as SS. The initial equilibrium occurs at point E with equilibrium price and quantity being P0and Q0respectively. Grape is one vital input in wine production. The wide spread drought that reduces grape yields hampers the production of wine. This shifts the supply curve of Semillon wine to the left to S1S1.The supply shortage tends to increase equilibrium price of wine and decrease the equilibrium quantity of wine. An economy wide increase in tax reduces disposable income of average household. With a lower income, people tend to cut their consumption expenditure
Paraphrase This Document
Need a fresh take? Get an instant paraphrase of this document with our AI Paraphraser
4ECONOMICS (Friedman, 2017). As a result, the demand of wine will be reduced as shown by the inward of supply curve from DD to D1D1.Demand of wine further reduces following a decrease in price of beer. As beer and wine are substitute a decrease in price of beer encourages people to consume more beer while discouraging consumption of wine. The demand curve of wine again shifts leftward to D2D2.The lower demand causes a downward pressure on price. The final equilibrium occurs where the new supply curve and new demand curve intersects. The effect on equilibrium price depends on magnitude of change in demand and supply. As change in demand far exceeds the change in supply, equilibrium price lowers to P3and equilibrium quantity lowers to Q3. Question 2 Question a Price Quantit y of tickets sold per daydQ/dPP/QElasticity 0736 10644-9.20.02-0.14 20552-9.20.04-0.33 30460-9.20.07-0.60 40368-9.20.11-1.00 50276-9.20.18-1.67 60184-9.20.33-3.00 7092-9.20.76-7.00 800-9.20.00Infinity Question b At $30, the estimated price elasticity of demand is 0.60. This shows a relatively inelastic demand at this price. As price is relatively inelastic, an increase in price from $30
5ECONOMICS will increase revenue of the theatre company. Because of inelastic nature of demand, the proportionatedecreaseindemandfollowingtheincreaseinpriceislessthanthe proportionate increase in price (Baumol & Blinder, 2015). This results in an increase in revenue following a price increase. Question c The obtained equation for daily demand for theatre ticket is P=80−0.1087Q Question d From estimated demand function in terms of Q can be rewritten as Q=80−P 0.1087 At price $65, the obtained demand for ticket is Q=80−65 0.1087 ¿15 0.1087 ¿138 At price $70, the demand for ticket is given as 92. Priceelasticityofdemand(MidPointelastictymethod)=Percentagechange∈Quantitydemanded Percentagechange∈Price ¿Change∈quantitydemanded Change∈Price×AveragePrice AverageQuantitydemand
6ECONOMICS ¿Q2−Q1 P2−P1 × P2+P1 2 Q2+Q1 2 ¿92−138 70−65× 70+65 2 92+138 2 ¿−46 5×67.5 115 ¿−9.1996×0.58698 ¿−5.4 The estimated price elasticity of demand is greater than 1 meaning percentage change in quantity demanded is greater than the percentage change in price. This indicates demand is relatively elastic in nature. The obtained value of elasticity is -5.4. This implies 1 percent increase in ticket price reduces the number of ticket sold by 5.4 percent. Question e Increase in price of theatre admission by $5 implies a price change of 5 30×100=16.67% In response to change in price of theatre ticket, there is a 15% increase in purchase of cinema tickets. This gives an estimate of cross price elasticity of demand. The computed cross price elasticity of demand is Crosspriceelasticity=Percentagechange∈quantitydemanded Percentagechange∈priceoftherelatedgood ¿15 16.67
Secure Best Marks with AI Grader
Need help grading? Try our AI Grader for instant feedback on your assignments.
7ECONOMICS ¿0.90 The obtained cross price elasticity shows that 1 percent increase in price of cinema theatre admission increases demand for cinema tickets by 0.9 percent. The elasticity value tells the cinema managers that theatre ticket price and cinema tickets are substitutes (Cowen & Tabarrok, 2015). Given the information that increase in price results in a 15% increase in purchase of cinema tickets, number of cinema tickets purchased after increase in ticket price of theatre is obtained as 350+(350×15%) ¿350+52.5 ¿402.5403 Question 3 Question a 020000400006000080000100000120000140000 0 100 200 300 400 500 600 700 Demand and Supply Curves QD QS QS1 Quantities Price Figure 4: Demand and supply of bicycles
8ECONOMICS Question b The initial equilibrium price of bicycle is $500 and equilibrium quantity of bicycle is 50000. Question c After the imposition of tax equilibrium price increases to $400 while equilibrium quantity of bicycles is 40000. Question d Of the imposed tax of $100, $50 is borne by the sellers of bicycles and rest of the $50 is borne by the seller of bicycles. Question e TaxRevenue=unittax×Quantitiessold ¿$100×40000 ¿$4000000 Question f Consumer surplus before tax CS=1 2×(600−350)×50000 ¿1 2×250×50000 ¿6250000 Consumer surplus after tax
9ECONOMICS CS=1 2×(600−400)×40000 ¿1 2×200×40000 ¿4000000 Change∈consumersurplus=6250000−4000000 ¿2250000 There is a loss in consumer surplus by 2250000 Question g Producer surplus before tax PS=1 2×(350−100)×50000 ¿1 2×250×50000 ¿6250000 Consumer surplus after tax PS=1 2×(300−100)×40000 ¿1 2×200×40000 ¿4000000 Change∈producersurplus=6250000−4000000 ¿2250000
Paraphrase This Document
Need a fresh take? Get an instant paraphrase of this document with our AI Paraphraser
10ECONOMICS There is a loss in producer surplus by 2250000 Question h Deadweightloss=2×1 2×50×(50000−40000) ¿50×10000 ¿500000 Question 4 Question a Market demand for tutoring service is P=120−0.05Q Market supply for tutoring service is P=12+0.07Q Equilibrium is determined where market demand equates market supply. Demand=Supply ¿,120−0.5Q=12+0.7Q ¿,0.5Q+0.7Q=120−12 ¿,0.12Q=108 ¿,Q=108 0.12 ¿,Q=900 Given the equilibrium quantity, the market price can be determined as
11ECONOMICS P=120−0.5Q=120−(0.05×900) ¿120−45 ¿75 The market equilibrium price for tutoring service is $75. The regulated price of $60 is set below the market equilibrium price. As the price is set below the equilibrium price, this is called a policy of price ceiling (Mochrie, 2015). Price ceiling sets a legal maximum price in the market. By limiting price to $60, the policy intends to helps the students who can then get tutoring service at a relatively lower price. Question b Quantity of hours of tutoring service demanded at the regulated price is obtained as Q=120−P 0.05 ¿120−60 0.05 ¿60 0.05 ¿1200hours Question c Quantity of hours of tutoring service supplied at the regulated price is obtained as Q=P−12 0.07 ¿60−12 0.07
12ECONOMICS ¿48 0.07 ¿685.71686hours Question d Figure 5: Economic surplus resulted from regulated price Question 5 Question a Numbe r of worker s Output(unit s) Margin al Product of Labour Fixed cost (Capital ) Varible Cost (labour ) Total Cost Margin al Cost Averag e Fixed Costs Averag e Variabl e Costs Averag e Total Costs 00-$6000$600---- 1330330$600$300$900$300$600$300$900 2705375$600$600 $1,20 0$300$300$300$600 31020315$600$900 $1,50 0$300$200$300$500 41260240$600$1,200$1,80$300$150$300$450
Secure Best Marks with AI Grader
Need help grading? Try our AI Grader for instant feedback on your assignments.
13ECONOMICS 0 51410150$600$1,500 $2,10 0$300$120$300$420 6147060$600$1,800 $2,40 0$300$100$300$400 Question b Firm’s revenue corresponding to break even is $900. At break-even total revenue equals total cost. Total cost of the firm is $900 corresponding to the output level of 330. Question c The diminishing return occurs from the output level of 1020 units. From this level of output, the marginal product of labor starts falling indicating adding one additional labor would make a relatively smaller addition to total output (Mankiw, 2016). This is because given the fixed supply of capital, addition more and more labor reduces capital per worker and hence, reduces marginal product of labor. Question d Following the trend in marginal product of labor, the marginal product of labor is negative corresponding to the output level of 2000 units. The firm should not commit to the order unless there is room for hiring additional labor, which might results in positive return from the additional labor unit. Question e
14ECONOMICS 330530730930113013301530 $0 $100 $200 $300 $400 $500 $600 $700 $800 $900 $1,000 AVC, ATC, MC and AFC Marginal Cost Average Fixed Costs Average Variable Costs Average Total Costs Figure 6: Average variable cost, average total cost, marginal cost and average fixed cost Fixed cost refers to the cost that does not vary with level of output. This costs are independent of level of output (Mahanty, 2014). This is the cost associated with fixed inputs. Labor being a variable unit, an increase in labor cost will not make any change to average fixed cost and hence, it will not shift. Variables cost are costs that depend on the level of output. As labor is the variable input an increase in labor cost will increase the average variable cost shifting the curve up. With increase in average variable cost average total cost which is the sum of average fixed cost and average variable cost will increase as well. The average total cost will shift upward. Marginal cost is the change in total cost due to unit change in output (Kreps, 2019). Following an increase in cost of labor, marginal cost increases causing the existing marginal cost curve up.
15ECONOMICS References Baumol, W. J., & Blinder, A. S. (2015).Microeconomics: Principles and policy. Nelson Education. Cowell, F. (2018).Microeconomics: principles and analysis. Oxford University Press. Cowen,T.,&Tabarrok,A.(2015).Modernprinciplesofmicroeconomics.Macmillan International Higher Education. Friedman, L. S. (2017).The microeconomics of public policy analysis. Princeton University Press. Kreps, D. M. (2019).Microeconomics for managers. Princeton University Press. Mahanty, A. K. (2014).Intermediate microeconomics with applications. Academic Press. Mankiw, N. G. (2016).Principle of Microeconomics. Cengage Learning. Mochrie,R.(2015).Intermediatemicroeconomics.MacmillanInternationalHigher Education.