Microeconomics Answers

Suppose that Palestinian government raises the price of bread from NIS 4 to NIS 5 and thus

quantity demanded falls from 5,800 per week to 5,500. Calculate total revenue both before

and after the price change. Compute the price elasticity of demand for bread. What can we

tell about the price elasticity of demand for bread?

2) Assume that the price elasticity of demand is 1.5 and supply is perfectly inelastic. And

suppose that the supply of the Palestinian olive oil has increased by 30%. What is the new

price if the old price is $10/KG? Explain.

1) Assume that for olive oil in Palestine, the price elasticity of demand is 0.8 and the price

elasticity of supply is 0.7. And suppose that the demand for the Palestinian olive oil has

increased by 20%. Do you think the price of Palestinian olive oil would increase or decrease?

By how much? Explain and show calculations.

Assume that the equilibrium price of Building Stone in West Bank is $20/m, and the

equilibrium quantity is 1000m. Suppose that the Government sets a maximum quantity

800m on the building stone market. How this policy would affect consumer surplus,

producer surplus, and total surplus. (Explain your answer by drawing a complete graph)

Assume that the equilibrium price of rice in West Bank is $ 1.5 /KG. Suppose that the

government decided to set a maximum price of rice equal to $1 /KG:

Use the demand and supply curves to show the effects of the new price on the quantity

consumed of rice.

Who is benefiting from fixing the price of rice at $1/KG? The consumer or producer.

Explain your answer using demand and supply curves.

Quantity demanded= 20000-3P

quantity supplied= 15000+2P

a. calculate the equilibrium price and quantity.

b. calculate the price elasticity of supply using the point method when the economy is in equilibrium.

What will happen to the equilibrium quantity and equilibrium price of renewable

energy resources if energy sector improves the technology?

Quantity demanded= 20000-3P

quantity supplied= 15000+2P

a. calculate the equilibrium price and quantity.

b. calculate the price elasticity of supply using the point method when the economy is in equilibrium.

In the year 2015, Maggie was banned in India for using more than permissible limits of harmful chemicals such as lead, MSG (Monosodium glutamate). After a few months the ban was lifted. However, this controversy made Indian consumers aware of harmful ingredients such as lead, MSG and their effects.a) What could be possible effects of this increasing awareness on the equilibrium quantity and price of Ching’s noodles with one of the ingredients as MSG? Explain with the help of a demand-supply graph.
B)One of the main ingredients used in Ching’s noodle is Maida (refined wheat flour). Suppose in the same year there was a very good harvest of wheat, so prices of wheat fell. How will it affect Ching’s noodle market (compare with part a)?

Q2. Suppose you are on a three-day trip to Rome (from Monday to Wednesday) and during your stay you decide to consume only Waffle and Ravioli (measured on the horizontal and vertical axes respectively). You have a given amount of money (some constant) to spend on each of the three days. Suppose that the price of Waffle rises between Monday and Tuesday. If your optimum points of consumption on Monday and Tuesday are respectively called M and T, such that M to the left of T, what does it say about both the commodities? Illustrate your answer using an appropriate diagram. [3 MARKS, Word limit: 200]