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Microeconomics
The tutorial questions for this week are aimed at reinforcing your understanding
of the following topics in microeconomics:
1. Demand, supply and market equilibrium
2.
Price elasticity of demand
3. The effect of taxes on equilibrium
Question 1
Identify each the following as change in demand or change quantity
demanded.
Grape consumption falls because of consumer boycott
Grape consumption falls because of the rise the price of grapes
c.
Grape consumption falls because of change in tastes and preferences
against grapes
Question 2
The demand curve for salted codfish is Q=200- 5p and the supply curve Q=Sp
Write down the corresponding inverse demand
b. Find the equilibrium price and the quantity traded
c.
quantity tax of $2 per unit placed on salted codfish Determine the new
equilibriurn price paid by demanders, the new price received by suppliers
and equilibrium quantity sold.
Question
Suppose that the demand curve for beans is given byo 40- 2P, which isa linear
demand curve.
a.
Write down the corresponding inverse demand function
b.
At what price will the quantity demanded of beans become zero?
c.
Draw the demand curve and indicate which portion of the curve is clastic,
which portion inclastic and which portion unit clastic.
d.
If P=2 what is the total revenue? What the price clasticity of demand
at this point? Is clastic. inclastic or unit clastic?
e.
Without doing any additional calculations state which point of the
curve the total revenue is maximized, and then explain the logic behind
your answer.
The tutorial questions for this week are aimed at reinforcing your understanding
of the following aspects of government intervention in markets:
1. Price ceilings and price floors
2. The effect of taxes on market equilibrium
Question
The demand and supply for product are: Q° -26-2P; O -2P- 10
a. What the equilibrium price and quantity?
b. If there is price ceiling of P-6,1 s it effective? Explain.
c. Given the price ceiling p apt (b) how much traded? Will there be excess
demand (shortage) or excess supply (surplus)? How much will the shortage
surplus be?
Hint For: price ceiling to be effective (or binding) must be set below the
equilibrium price in which case the equilibrium will be illegal. Ifthe equilibrium
price remains legal under the price ceiling, then the equilibrium will prevail in
which case there willbe neither surplus not shortage.
Question 2
Consider market whose supply and demand curves are given by P- 2Q' and
P-42- - respectively where P. the price per unit ofa particular brand of
DVD;Q" the quantity of DVDs suppliedand Q'is the corresponding quantity
demanded.
a.
Determine the equilibrium price and equilibriurn quantity
b.
Determine the total revenue from DVD sales
c.
Graph the supply and demand curves and indicate the equilibrium price and
equilibrium quantity as well as the area representing total revenue
d.
Suppose that the government levies tax of $9 on each DVD sold,
determine the equilibrium quantity of DVDs sold, the price paid by buyers,
the price received by sellers and the government revenue
e. Show the results part (d)on diagram.
The tutorial questions for this week are aimed at reinforcing your understanding
of budget lines and budget sets in microeconomics.
Question
You have an income of $300 ospendor 2 commodities Commodity 1 costs $15
per unit and Commodity costs $10 per unit.
a. Write down your budget equation and draw your budget line. Shade the
budget set.
b.
Suppose that your income rises to $360 and prices remain the same, write
the new budget equation, and draw the new budget line in the same graph
as
in part (a).
c. Suppose the price of Commodity then rises to $12. Write the equation of
the new budget line on the same graph as in parts (a) and (b).
d. Shade the area representing the commodity bundles that you can afford with
the budget part (b) but could not afford with the budget part (c).
Question 2
(a) Joc has $1000 which he can spend on either CD players (P) or CDs (C) CD
players cost $400 and CDs cost $10. Write down the equation of Joc'
budget line and shade his budget set.
(b)Suppose that budget constraint given by PIXI =m. Write the
formula for the new budget if the government decides to impose quantity
tax good oft
(c) Some electric companies have adopted "excess use charges' that increase
the cost of electric power after certain minimum number of kilowatt hours
per month has been used How does such charge affect the individual's
budget constraint? Illustrate the new constraint with graph. (Hint you
should treat the two goods as "electricity" and "composite good' comprising
all other goods.

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