Microeconomics Answers

If you were going to market a product how Would you use the analysis of price elasticity of demand to help determine the product you would market

1.     Define the equilibrium of a market. Describe the market forces that move a market towards its equilibrium.

1.     What are the major objectives of microeconomics? Write a brief definition of each of these objectives. Explain carefully why each objective is important?

1.     Elucidate the following

a.      Scarcity

b.     Income Effect

c.      Substitution Effect

d.     Arc elasticity

1.     Suppose that business travelers and vacationers have the following demand for airline tickets from New York to Boston:

As the price of tickets rises from $200 to $250, what is the price elasticity of demand for (i) business travelers and (ii) vacationers? 

1.     In each case below use a single supply-and-demand graph to show the events in the indicated market. Label the initial and final price and quantity on the graph. Provide a brief explanation.

(a)    Cotton. Farmers can grow either cotton or melons on their land and the initial equilibrium price of cotton is 40 cents per pound. Then the demand for melons rises.

(b)  Wine. The initial equilibrium price of a bottle of wine is $20. Then there is a drought in the wine-growing region and the drought makes the wine nastier tasting than before.

(c)   The tomato market: The initial equilibrium price of tomatoes is $2 per pound. Then the price of tomato fertilizer falls. 

1.     a. Initially, the demand and supply for beans are

where p = price in cents per pound and Q = pounds per day. The government has a stockpile of beans (which is not included in the initial supply equation). It wants to cut the price of beans to 8 cents per pound. How much should it sell from its stockpile?

b. Explain each of the following cases.

(a)   If the elasticity is greater than 1, is demand elastic or inelastic? If the elasticity equals 0, is demand perfectly elastic or perfectly inelastic?

(b)  If demand is elastic, how will an increase in price change total revenue?