Microeconomics Answers

When developing LTSM, both the needs of the educator and the learner needs to be taken into consideration. Why do you think this is so?

Suppose that market demand can be represented as p = 100 - 2Q. There are 10 identical firms producing an undifferentiated product, each with the total cost function TC = 50 + q

2

q2

. Compare the competitive outcome with the cartel outcome. What is the individual firm's incentive to cheat on the cartel?

Assume in a two-sector economy made up of agriculture and manufacturing, the government

introduces a subsidy of y per hour on labour in the manufacturing sector. What will be the

effect of the policy on the equilibrium wage, total employment as well as employment in

agriculture and manufacturing?

Suppose the following information describes the economy of a hypothetical country::

C        = 200 + 0.9Y_d

I         = 100

G        = 250

X        = 200

Z         = 50 + 0.12Y

t       = 20%

Using the multiplier approach, calculate the equilibrium income.

• A. 1925
• B. 1750
• C. 2950
• D. 2000

Following are the demand and supply function of a market

QD A = 8000 - 1000Px, QS A = - 4000+2000Px

i) Find out the market clearing price and quantity.

ii) Plot, on one set of axes, the market demand curve and the market supply curve

for commodity A and show the equilibrium point.

iii) Is the equilibrium stable? Explain.

Do we need cashless transactions what are the modes of cashless transactions

State whether each of the following is true, false or uncertain and explain why.

a) If a good is a normal good. then the substitution effect and the income effect are of the same sign.

b) If a consurner has Cobb-Douglas preferences, it is possible for one of the goods to be a Giffen good.

c) If a consumer has quasi-linear preferences over two goods, then her consumption of neither good depends on her level of income.

Suppose u = x1^1/2 x2^1/2 Initially we have p1 = p2 =1. but then p1 rises to 2. The consumer’s income is $40

a) . Solve for the optimal points both pre and post price change and show these point on a clear complete graph.

b) Define in words what the CV associated with this price change represents for this consumer. Using the method covered in class, solve for the CV associated with this price change for this consumer. Show this on a graph.

c) Define in words what the EV associated with this price change represents for this consumer. Solve for the EV associated with this price change for this consumer. Show this on a graph.

d) Which measure of welfare change is larger? Why?

1. utility function u = x1^1/3 x2^2/3. and income = $60.

a) Solve for MU, and MU2 and use these to determine the MRS. Now use the tangency condition MRS = -p1/p2 together with budget line to solve for the demand functions for x1 and x2 for this consumer.

b) Initially we have p1 = 2 and p2 = 1, but then p1 falls to 1. Use your demands to solve for points A and C (the optimal points pre and post price change). Show these points on a clear well-labelled graph

c) Now determine the Slutsky demand by computing the income that would make point A just affordable with the new prices. Plug this hypothetical income and the new prices into your demands to solve for point B, as done in class. Show both the hypothetical budget line and point B on either your graph in a) or a new graph. Show the substitution and income effects on your graph, and compute them.

d) Graphically, do the same analysis using the Hicks decomposition method ( show it on a graph). Show the income and substitution effects on your graph.

A supplier supplies 50 T-shirts when the price is R60 per t-shirt and 90 t-shirts when the price is R110 per t-shirt.

a). Determine the equation of the supply function as a function of q?

b). How many additional t-shirts are sopplied for each successive R1 increase in price?

c). How many t-shirts are sopplied when the price is R85?

d). What is the price when 120 t-shirts are sopplied?