Microeconomics Answers

You are an analyst employed by a yacht manufacturer that last year sold 30,000 luxury yachts at $500,000 each. Your market research indicates that:

i) the price elasticity of demand for your aircrafts in −0.5. (or +0.5 in absolute value); 

ii) the income elasticity of demand for your aircrafts is +2.6; and 

iii) the cross price elasticity for your aircrafts with respect to the price of a comparable jet manufactured by a competitor is +1.4. 

Answer the following questions based on the information above:

A. Suppose that you expect a ceteris paribus decrease in average incomes of 15% this year compared to last year. How many aircrafts do you estimate that your company will sell this year? How will it impact total revenues? (6 MARKS)

B. Assume now that you do not think incomes will change, but that you expect your competitor will decrease his price by 3%. Assuming that your company does not change the price of its aircrafts, how many would you expect your company will sell this year? (5 MARKS)

Several years ago flooding along with the Missouri and the mississip rivers destroyed thousands of acres of wheat

a) what information would you need about the market for wheat to assess whether farmers as a group were hurt or helped by the floods?

The population in country C decreases, due to a lower birth rate. At the same time, there is an increase in the cost of fertilizer, which is used to grow vegetables. Explain how the market for vegetables will be affected by these changes. Clearly indicate how the equilibrium price and equilibrium quantity will be affected by these changes. Make use of a combination of diagrams and verbal explanation to explain your answer. Note that your diagrams should be properly annotated and that marks will be deducted for any missing labels on your diagram.

If milk is a normal good, then a decrease in consumers’ income will definitely cause 

Consider a small country that exports steel. Suppose that a ‘protrade’ government decides to subsidize the export of steel by paying a certain amount for each tonne sold abroad. How does this export subsidy affect the domestic price of steel, the quantity of steel produced, the quantity of steel consumed, and the quantity of steel exported? How does it affect consumer surplus, producer surplus, government revenue, and total surplus? (Hint: The analysis of an export subsidy is similar to the analysis of a tariff.)

Show the effect of each of the following events on the market for labor in the computer

manufacturing industry.

a. The federal government buys personal computers for all Australian university students.

b. More university students study engineering and computer science.

c. Computer firms build new manufacturing plants.

Your enterprising uncle opens a sandwich shop that employs seven people. The employees are paid $32 per hour and a sandwich sells for $8. If the market for sandwiches is competitive, and your uncle is maximizing his profit:  

a. What is the value of the marginal product of the last worker he hired? 

b. What is that worker s marginal product?  

c. Suppose that your uncle purchases a new machine that increases the marginal product of each worker. How will this affect the number of workers that he hires? Explain.

Suppose Colgate and Doctor Toothpastes are substitutes of each other; explain the effect of an increase in the price of Colgate on demand of Doctor Toothpaste? Also illustrate diagrammatically this change in the demand of Doctor Toothpaste will be entitled as change in quantity demanded or change in demand curve?

Draw a demand and supply graph for the market for Dell notebook computers

How decrease income will affect demand of meat which is normal goods