Microeconomics Answers

what would we expect to happen to the market when the government imposes a price floor below equilibrium

If a consumers objective function is given by U=X₁^aX₂^b subject to P₁X₁ + P₂X₂ = m. Establish the levelsbof X₁ and X₂ that maximizes the consumers satisfaction.

Describe and draw a situation where long run supply curve might sift upword?

the income elasticity of demand of commodity M, is 0.84 a.interprete the magnitude in the elasticity value b.write the formulae for calculationg such elasticity (define all symbols). c.by how much will demand of commodity M changeif income should decrease by 12.5 percent?

The demand curve for haircuts at Terry Bernard’s Hair Design is Q = 100 – 5P where Q is the number of cuts per week and P is the price of a haircut. Terry is considering raising her price above the current price of $15. Terry is unwilling to raise price if the price hike will cause revenues to fall. a. Should Terry raise the price of haircuts above $15? Why or why not? b. Suppose demand for Terry’s haircuts increases to Q = 100 – 2.5P. At a price of $15, should Terry raise the price of her haircuts? Why or why not?

QUESTION 2

a) Kembang has 6 bags of sweet potato and 18 bagels. Tam Tam, on the other

hand, has 16 bags of sweet potato and 8 bagels. Kembang’s marginal rate of

substitution (MRS) of potatoes for bagels is 6 and Tam Tam’s MRS is equal

to 4. Draw an Edgeworth box diagram to show whether this allocation of

resources is efficient. Justify your answer with an economic suggestion.

(15 marks)

b) A contract curve is a curve in which all points along it is socially desirable.

TRUE or FALSE? Justify your answer clearly. (15 marks)

c) In a hypothetical country named Country Adeng, there are only two goods

produced and consumed: Good 1 and 2. The MRS is 2 and this means, the

consumers give up 2 Good 1 in order to consume one additional unit of Good

2. On the other hand, the MRT is 4. The economic advisors of Country

Adeng suggested to their Prime Minister that the current situation of MRS

and MRT of this country is in a good shape. Are they right? Justify your

answer clearly. (15 marks)

Suppose the utility function for a firm manager is Z=2H1H2 and his income is Y=P1H1 + P2H2. derive the demand equation for H1 and H2.

. Yamoah has an income (M) ofGH¢200 to spend on two commodities Maize and Yam. 

Maize costs GH¢ 1.20 per unit and Yam costs GH¢ 1.1 0 per unit. 

(a) 

Write down Mrs. Yamoah's budget equation. 

(b) 

Write down Mrs. Yamoah's budget line. 

(c) 

What is Mrs. Yamoah's Marginal Rate of Substitution of Maize to Yam? 

Suppose the demand and supply for good x are functions p=6.25-1/8Qd and p=1.75+1/10Qs what is the equilibrium price and quantity

cigarettes are forbidden, so people trade cigarettes in a black market. The 

cigarette demand is 𝑄𝐷 = 12 − 𝑝, and cigarette supply is 𝑄𝑆 = 2𝑝.