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A consumer has an income of $3000. Wine costs $3 per giass and cheese.an inferior good costs $10 per pound. The price of cheese fails from $10 to $6 while the price of wine remains the same, If the income remains constant, what wil happen to the consumption of wine and cheese Decompose into income and substitution effect
Study the given case carefully and answer the questions asked at the end.
In 1997, over $70,0000 million purchases were charged on credit cards, and this total is increasing at a rate of over 10 percent per year. At first glance, the credit card market would seem to be a rather concentrated industry. Visa, Master Card, and American Express are the most familiar names and over 60 percent of all charges are made using one of these three cards. But on closer examination, the industry seems to exhibit most of the characteristics of perfect competition.
a. What type of market is the American credit card market? And why? Explain. (10 Marks)
Do you believe that a new firm in the industry finds a difficulty to enter? Why? Give reasons.
Radisson Hotel had compiled a past year (2017) data on the numbers of rooms demanded by its clients as a result of room rate changes. During the off-peak season in May, a promotion was held and it discounted the room rate from $550 to $400. This promotion of room rate had brought in 700 room stays compared to 350 rooms stays before the room rate adjustment.
Calculate the price elasticity of demand of Radisson Hotel’s clients
Suppose the demand for commodity X as the function of its own price and consumer’s money income,
keeping other factors constant is described by the following equation:
X = 100,000 – 2PX + 7M; where M is consumer’s money income in Birr and PX is price of the
commodity X in Birr. If the price is Birr 10,000 and money income is Birr 15,000, then:
a. what is the total demand for X at the prevailing market price and income
b. calculate the income elasticity of demand for the commodity &; comment on the type of elasticity and
type of commodity
c. calculate the price elasticity of demand for the commodity and determine the type of elasticity
Suppose that the consumer’s utility function is given by 1/ 2 1/ 4 U 10X Y . If price of good X and Y are 4 and 2
respectively and income constraint is Birr 100.
a. The demand equation for X and Y.
b. The utility maximizing levels of X and Y.
c. The maximum utility.
d. Compute both X ,Y Y ,X MRS and MRS . Is there any difference between the two?
1. Jose spends her income $40 on two goods. Good X and Good Y. The price of good X is $8 and price of good Y is $2.
(a) Draw the budget constraint to show how Jose can spend his money on the two goods.
(b) Calculate the slope of the budget line.
(c) If the price of good X increase by $2 what will happen to the budget line?
(d) If the price of good Y decreases by $1 what will happen to the budget line?
1. The demand function for plantains is Qd =100 – 6P while the supply for plantains is
Qs = 28 + 3P where Qd is the quantity demanded, Qs is the quantity supplied and P is the price of plantains.
(a) Calculate the equilibrium price and quantity for plantains.
(b) Plot the data on a graph
(c) On the same graph increase the supply of plantains,.
(d) State what is the impact on equilibrium price and quantity?
Write down the matrix of the quadratic form
Q(x1,x2,x3,x4) = x12 +2x2 −7x32 +x42 −4x1x2 +8x1x3 −6x3x4
In 2021, a major ice storm hit the northern areas. The storm brought down power lines and trees, cutting electricity in many areas, making travel difficult, and slowing down repair crews. Heating homes became a major challenge. The storm created shortages of power generators. As a result, those products sold at prices much higher than normal. These high prices provoked cries of “price gouging” and calls on the government to impose price controls to prevent gouging. While no one likes to pay a higher price than normal for something, consider what would have happened with a price ceiling. The economic intuition is revealing.
Draw a diagram showing the market for generators with an equilibrium price at Rs.25,000. Now impose a price ceiling at Rs.20,000 per generator. What would be the impact of the price ceiling on the quantity demanded? On the quantity supplied? Who would benefit from the price ceiling and who would be harmed?
Q.1 Suppose you manage a local grocery store and you learn that Imtiaz super Market is about to open a store near you.
Use the model of monopolistic competition to analyze the impact of this new store on the quantity of output your store should produce (Q) and the price your store should charge (P). Note, we are assuming you each sell one representative good.
Explain how the opening of this new store may affect your business. Be sure to address what can happen to your customers, supply and demand, and prices. What will happen to your profits? Show graphically and explain your reasoning in detail.
Explain at least one strategy that could be used to defend your market share against the new store (e.g., address what you are going to do to keep your customers).
