Microeconomics Answers

 Does a change in consumers’ tastes lead to a movement along the demand curve or a shift  in the demand curve? Does a change in price lead to a movement along the demand curve  or a shift in the demand curve? Explain your answers using examples.

1. Country A is a small island where the citizens can either grow apples and/or make shoes. The  table below shows the maximum annual output combinations of apples and shoes that can be  produced. [5] 

Maximum Annual Output  (Combinations)

Quantity of apples (Kilos)

Quantity of shoes 

(pairs)

A 

1000 

B 

800 

300

C 

600 

500

D 

400 

600

E 

200 

650

F 

0 

675

Given that their limited resources and available technology, answer the following: 

a) Draw a production possibility frontier with apples on the horizontal axis and shoes on the  vertical axis illustrating these options, showing points A–F. 

How do you interpret the value of the slope of Isocost line

Consider a fi rm that produces pizzas with capital and

labor inputs. Defi ne and contrast diminishing returns

and decreasing returns to scale. Explain why it is possible

to have diminishing returns for one input and

constant returns to scale for both inputs

Explain the concept of a production function. Describe

the production function for hamburgers, computers,

concerts, haircuts, and a college education

. The supply curve of a monopolist:

A.   Is upward-sloping.

B.   Is downward-sloping.

C.   Is the rising part of MC.

D.   Does not have a supply curve.

None of the above

49. Which one of the following may result in a decrease in the demand for frozen vegetables?

A.     A rise in consumers’ incomes.

B.     An increase in the price of frozen vegetables.

C.     A decrease in the price of freezers.

D.     A decrease in the price of fresh vegetables.

A decrease in the price of frozen vegetables

We choose between couriers such as DHL and Federal Express based on the quality, convenience and reliability of service that they offer, not just on the price that they quote. Once we recognize that service matters, the inevitability of scale economies is greatly reduced. Even Amazon has to organize the distribution of the products that it sells. Do you agree?

Consider a market for Ice Cream an inferior good in Pakistan. For each of the given events, identify which of the determinants of the demand or supply are affected. Also indicate whether demand or supply increase or decreases. Then draw a diagram to show the effect on the price and quantity of Ice Cream. 

1.News reports claim that the consumption of Ice Cream is good for the health of coronavirus patients. (1 Mark)

2. There has been a decline in wages of all employees in Pakistan due to the third wave of coronavirus. (1 Mark)

3. People in Pakistan decide to have more children. (1 Mark)  

4.  Students of NED University develop new automated machinery for the production of Ice Cream. (1 Mark)  

5.There has been a decrease in people’s income due to COVID-19 crisis. (1 Mark) 

A firm faces the production function Q = 12K^0.4 L^0.4 and can buy the inputs K and L at prices per unit of £40 and £5 respectively. If it has a budget of £800 what combination of K and L should it use in order to produce the maximum possible output? Show graphically as well.