Microeconomics Answers

Explain how an increase in the price of organic onions can affect the supply of organic tomatoes that use the same land to grow. How will this affect the equilibrium price and quantity of organic tomatoes?

Using the following graph, show what happens to consumer surplus when a new technology reduces the cost of production

Suppose, the government has decided that the free-market price of sugar is too low. Government has imposed a binding price floor of per kg sugar at 60 taka, whereas, the market price was 50 taka per kg before the announcement.

a. Explain the effects of this flooring price on the demand and supply of the sugar market. In your graph, show the effects of the price changes on quantity demanded and quantity supplied. Does it create excess supply or excess demand? What will happen to the market price?

b. In the above situation, who (buyers or sellers) is going to get the benefit from such policy? Explain it in your own words (clue: use a graph where a Price flooring is binding).

Assume you are the Minister of Finance and need to raise revenue by choosing to tax a specific good, such as cigarettes or jewellery. Suppose that cigarettes have an inelastic demand, while jewellery has an elastic demand. Based on their elasticity, would you tax jewellery or cigarettes?

The following information is available to a Zambian trader:

i. Percentage spread given for Zambian kwacha per US dollar is 0.1%. The ask rate for Zambian kwacha per C$ dollar is K9.526

ii. Canadian dollars per US dollar                 C$ 1.2780/US$

iii. Kwacha per US dollar                                 K8.524/US$

a)  Calculate the bid rate                                                                                

b)  Determine if there is any opportunity for arbitration                             

c)  Explain How a Zambian trader with K1, 200,000 can use this amount to benefit from the inter market arbitrage?                                                              

What will be the profit or loss for the trader? 

You have just graduated from the Information Communication University (ICU) of

Lusaka in Zambia and are leaving on a whirlwind tour to see some friends. You wish to

spend USD 1,000 each in Germany, New Zealand, and Great Britain (USD 3,000 in total).

Your bank offers you the following bid-ask quotes:

USD/EUR 1.304-1.305, USD/NZD 0.67­0.69, and USD/GBP 1.90-1.95.

(a)      If you accept these quotes, how many EUR, NZD, and GBP do you have at departure?                                                                                                 

(b)      If you return with EUR 300, NZD 1,000, and GBP 75, and the exchange rates are unchanged, how many USD do you have?                                          

(c)      Suppose that instead of selling your remaining EUR 300 once you return home, you want to sell them in Great Britain. At the train station, you are offered GBP/EUR 0.66-0.68, while a bank three blocks from the station offers GBP/EUR 0.665-0.675.                                                                                                       

 i) At what rate are you willing to sell your EUR300?                               

          ii) How many GBP will you receive? 

Assume that there is an increase in the price of petroleum ..using a graph illustrate and explain the effects of this on output and commodity price in the economy?

Using an appropriate graph, demonstrate the changes in the firm’s demand for labour in

terms of:

(a) changes in market wage rate. (20 marks)

(b) changes in the price of output (that produced by the labour).

Elmer's utility function is U(x, y) = min{x, y2}. If the price of x is $25 and the price of y is $15 and if Elmer chooses to consume 7 units of y, what must his income be?

Using a diagram, explain the concept of quota and how it can create dead-weight loss.