Microeconomics Answers

A rise in the price of coffee milkshakes from R6 to R10 results in an increase in quantity supplied from 6 000 to 12 000 units. This means that the arc price elasticity of supply for coffee milkshakes is.

Identify the decision made using by Honda could reduce the cost of production .

Nestle Frozen Yogurt shops have enjoyed rapid growth in Karachi in recent years. From the analysis of Nestle various outlets, it was found that the demand curve follows this pattern.

         Q= 200 – 100P + 120i + 32T -250 Ac + 400 AN

Where

Q= Number of cups served per week

 P= Average price paid for each cup

 i= Per capita income in the given market (thousands)

 T= Average outdoor temperature

 Ac= Competition’s monthly advertising expenditures (thousands)

AN = Nestle own monthly advertising expenditure (thousands)

8. Elasticity problems:

a. The world demand for crude oil is estimated to

have a short-run price elasticity of 0.05. If the

initial price of oil were $100 per barrel, what

would be the effect on oil price and quantity of

an embargo that curbed world oil supply by 5 per-

cent? (For this problem, assume that the oil-supply

curve is completely inelastic.)

b. To show that elasticities are independent of units,

refer to Table 3-1. Calculate the elasticities between

each demand pair. Change the price units from

dollars to pennies; change the quantity units from

millions of boxes to tons, using the conversion fac-

tor of 10,000 boxes to 1 ton. Then recalculate the

elasticities in the fi rst two rows. Explain why you

get the same answer.

3. Classify each of the following statements as positive or normative. Explain.

a. Society faces a short-run trade-off between inflation and unemployment

b. A reduction in the rate of money growth will reduce the rate of inflation.

c. The Central Bank or Federal Reserve should reduce the rate of money growth.

d. Society ought to require welfare recipients to look for jobs. e. Lower tax rates encourage more work and more saving.

Classify the following topics as relating to microeconomics or macroeconomics.

a. a family’s decision about how much income to save

b. the effect of government regulations on auto emissions

c. the impact of higher national savings on economic growth

d. a firm’s decision about how many workers to hire

e. the relationship between the inflation rate and changes in the quantity of money

An economy consists of three workers: Larry, Moe, and Curly. Each works 10 hours a day and can produce two services: mowing lawns and washing cars. In an hour, Larry can either mow one lawn or wash one car; Moe can either mow one lawn or wash two cars; and Curly can either mow two lawns or wash one car.

a. Calculate how much of each service is produced under the following circumstances, which we label A, B, C, and D: • All three spend all their time mowing lawns. (A) • All three spend all their time washing cars. (B) • All three spend half their time on each activity. (C) • Larry spends half his time on each activity, while Moe only washes cars and Curly only mows lawns. (D)

b. Graph the production possibilities frontier for this economy. Using your answers to part a, identify points A, B, C, and D on your graph.

c. Explain why the production possibilities frontier has the shape it does.

d. Are any of the allocations calculated in part A inefficient? Explain.

1. "As long as all resources are fully employed and every firm in the economy is producing its output using the best available technology, the result will be efficient." Do you agree or disagree with this statement? Explain your answer

Suppose the marginal utility and total utility of Peter's weekly consumption of bananas are both positive and that he subsequently consumes fewer bananas per week.What will happen to his marginal utility and total utility of apples?

State any two ways that firms operating under perfect competition can use to increase their profit since they cannot temper with price and quantity