Macroeconomics Answers

4). Demand of a product is usually very sensitive to economic variables, such as the prices and consumer income. This responsiveness of demand is Compute elasticity in the below scenarios:

a). Yesterday, the price of envelopes was $3 a box, and Jacky was willing to buy 10 boxes. Today, the price has gone up to $3.75 a box, and Jacky is now willing to buy 8 boxes. Is Jacky’s demand for envelopes elastic or inelastic? What is Jacky’s elasticity of demand?

b). Katy advertises to sell cookies for $4 a dozen. She sells 50 dozen and decides that she can charge more. She raises the price to $6 a dozen and sells 40 dozen. What is the elasticity of demand? Assuming that the elasticity of demand is constant, how many would she sell if the price were $10 a box?

why should we study economics?

e) Suppose that the price of commercial property, a substitute in supply of residential property, rises. What is the possible impact on the market price and quantity of residential property? Explain and illustrate using a diagram.

d) Suppose the demand for houses is fairly elastic.

i) Define what is meant by a fairly elastic demand.

(4 marks)

(2 marks)

ii) What do you think will happen to the total revenue of developers when price of houses rise? Explain using a diagram.

c) In a new diagram, show the situation of property overhang as mentioned in paragraph 3 in the article. Also show how efforts by developers to limit units offered may avoid future overhang.

The wage rate of labor is Rs. 6 and price of capital is Rs. 2. The marginal product of labor is 16 while marginal product of capital is 4. Can a firm be operating at equilibrium?     

Suppose the following demand and supply function:

Q^d = 750 – 25P

Q^s = -300 + 20 P

      i.         Find the equilibrium price and quantity

    ii.         Find consumer and producer surplus

Suppose the market rate of interest on car loans declines substantially. Use

supply and demand analysis to predict the impact of the interest rate decline on the prices

of cars and the quantity sold.

Explain what will happen to inflation if government’s expenditures are increased and taxes are reduced?

A perfectly competitive firm has the cost function TC = 1000 + 2Q + 0.1 Q2. What is the lowest price at which this firm can break even?