Microeconomics Answers

Create a truth table for

(a)

A  B

(b) the converse of ‘A implies B’.

(a) The Organisation of Petroleum Exporting Countries (OPEC) is an example of which

form of market structure? Discuss its characteristic features. 10

(b) Using an appropriate diagram discuss Paul Sweezy’s Kinked Demand curve theory.

An increase in the production of beef will lead to a decrease in the production of leather (made from cattle hides).

Note, you will lose 50% of the mark for this question if you choose the incorrect option.

Qd = 960 – 30P ; Qs = 60 + 60P *

4. Suppose that in a year an American worker can produce 80 shirts or 30 computers and a Chinese worker can produce 120 shirts or 20 computers.

a. For each country, graph the production possibilities frontier. Suppose that without trade the workers in each country spend half their time producing each good. Identify this point in your graphs.

b. If these countries were open to trade, which country would export shirts? Give a specific numerical example and show it on your graphs. Which country would benefit from trade? Explain.

c. Explain at what price of computers (in terms of shirts) the two countries might trade.

d. Suppose that China catches up with American productivity so that a Chinese worker can produce 120 shirts or 30 computers. What pattern of trade would you predict now? How does this advance in Chinese productivity affect the economic wellbeing of the two countries’ citizens?

1. Maria can read 15 pages of economics in an hour. She can also read 40 pages of sociology in an hour. She spends 8 hours per day studying.

a. Draw Maria’s production possibilities frontier for reading economics and sociology.

b. What is Maria’s opportunity cost of reading 80 pages of sociology?

A market consists of two individuals . Their demand equations are:

P= 4 - 0.25Q₁ and P = 10 - 0.5Q₂

a) What is the market demand equation?

b) At a price of $2, what is the point price elasticity for each person and for the market?

1) When the demand function is 2Q - 24 + 3P = 0, calculate the price elasticity of demand when P = 4 and find the marginal revenue when Q=3.

2) A market consists of three people, A, B , and C, whose individual demand equation are as follows:

A: P= 35 - 0.5Q_A

B: P= 50 - 0.25Q_B

C: P= 40 - 2.00Q_C

The industry supply equation is given by Q_S = 40 + 3.5P

a) Determine the equilibrium price and quantity.

b) Determine the amount that will be purchased by each individual.

Suppose the market is in equilibrium – which of the following will always result in an increase in the equilibrium price?

Select one:

a.

a decrease in both the supply and demand

b.

a decrease in demand and an increase in supply

c.

a decrease in supply and an increase in demand

d.

an increase in both the supply and demand

What is the rationale behind the rationing system for allocation of scarce resources?