Microeconomics Answers

In the essay, discuss how consumers, producers and government have been affected during this current COVID19 pandemic. Use examples from your own country

Mr Banda faces the following utility function from consuming nshima [X] and Rice [Y] 𝑈 = 3𝑋𝑌 1 3 Mr Banda’s budget allocation for nshima and rice is K240. The price of nshima is K60 per Kg while that of Rice is K20 per Kg. A. How much nshima and rice should Mr. Banda consume to maximize his utility? B. What is the total utility at the optimum? [4 Marks] C. What is the Lagrange multiplier? D. What will be the increase in utility when the budget allocation is increased to K241?

Suppose that it costs $40,000/yr to get an MBA degree and that non MBAs expect to earn $60,000/yr while MBAs earn $80,000/yr. Assuming an MBA takes two years to finish and that all other costs are negligible, are wages and tuitions in equilibrium (i.e. would your average person strictly prefer one activity (getting an MBA) over another activity (not getting an MBA?). If not, how will markets adjust?

Suppose there are lemon (used) cars worth every price from ZMW1,000 to ZMW3000 to new owners, with each price equally likely. Further you expect that a car worth X to a new owner is worth 0.75X to its current owner. Suppose that there is a finite supply of cars at each price, while there is a much larger number of potential buyers (so the equilibrium price is the valuation of the potential buyer). Lastly assume that the quality of the car is unknown to potential buyers, due to information asymmetry.

(a) Calculate the equilibrium price and average quality of cars sold.

(b) Which cars are sold and which ones are not?

(c) Is the equilibrium efficient?

QUESTION FOUR

4) Suppose that you have the following demand curve. 

Q = 400 – 6P + 0.0051

Where

Q = quantity demanded,

P = price, and

I = average income. 

You know that the current market price is ZMW20 and average income is ZMW20,000

a)                Calculate current demand.

b)                Calculate the price elasticity of demand. 

c)                Calculate the income elasticity of demand.

A business incurred implicit costs of R500 000 and explicit costs of R5 million in a specific year. If the firm sold 100 000 units of its output at R50 per unit, what is its accounting and economic profit/loss?

An increase in the price of electricity will:

a. increase the demand for kerosene heaters.

b. increase the demand for light bulbs.

c. increase the demand for stereos.

d. increase the demand for TVs.

Assume that the South African economy is experiencing high inflation of above 10%.

Explain, with the use of the AD-AS model, how the Reserve Bank can reduce the inflation to its’ target range

1. Which of the following can lead to an increase in the supply for good X?
2. a. A decrease in the number of sellers of good X.
3. b. An increase in the price of inputs used to make good X.
4. c. An increase in consumers' income, assuming good X is normal.
5. d. An improvement in technology used in production of good X.
6. e. None of the above