Microeconomics Answers

Lerato decided to start selling ginger beer on her street. The other kids in the neighbourhood noticed that Lerato was making a lot of money selling ginger beer. These kids decided to open their own ginger beer stands. When they opened their own ginger beer stands, the equilibrium price

Pharmaceutical drugs have an inelastic demand,

and computers have an elastic demand. Suppose

that technological advance doubles the supply

of both products (that is, the quantity supplied

at each price is twice what it was).

You are the curator of a museum. The museum is running short of funds, so you decide to increase revenue. Should you increase or decrease the price of admission? Explain.

An increase in demand coupled with a decrease in supply would necessarily results in?

Suppose we observe that the equilibrium quantity of a particular good has increased significantly over the past 5 years, with virtually no change in the equilibrium price. The most likely explanation is that, over the past 5 years

1During the winter of 2004–2005, wholesale gasoline prices rose rapidly. Although retail gasoline prices increased, retailers’ profit per gallon fell. The difference between price and average variable cost for self-serve regular gasoline averaged RUPEES 7.7 a CRORE in the first quarter of 2005 compared with 9.1CRORE for all of 2004. In addition, many gasoline retailers exited the market.

A)Show how an increase in wholesale gasoline prices affects the individual retailer’s marginal cost and supply curves. 

B) Show how shifts in the individual retailer’s supply curves affect the market supply curve.

C)Show and explain why an x per gallon increase in wholesale gasoline prices results in a retail market price increase that is less than x.

d. Identify the effect of wholesale gasoline price increases on the profit margins of an individual gasoline retailer. 

E)Why has the increase in wholesale gasoline prices prompted many gasoline retailers to exit the market?