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What are the three main goals of macroeconomics explain through examples
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)
The equilibrium price of teaset rose sharply last month, but the equilibrium quantity was the same as ever. Three people tried to explain the situation. Which explanations could be right? Explain your logic.
Amena: Demand increased, but supply was totally inelastic.
Faisal: Supply increased, but so did demand.
Amena: Supply decreased, but demand was totally inelastic.
Suppose that business travelers and vacationers have the following demand for airline tickets from Karachi to Dubai:
Price
Quantity Demanded
(Business Travelers)
Quantity Demanded
(vacationers)
$150
2100 Tickets
1000 Tickets
$200
2000
800
$250
$300
1900
1800
600
400
a. As the price of tickets rises from $150 to $200, what is the price elasticity of demand for (i) business travelers and (ii) vacationers? (Use the midpoint method in your calculations.)
b. Why might vacationers have a different elasticity from business travelers?
c. What would you recommend based on the above information for airline to increase the revenue?
Based on your review of the experience of other nations and literature arrive at a conclusion if
the public sector wage bill can be an effective expenditure control
A brief explanation of the public wage bill in SA –(Its advisable to illustrate trends by means of
graphs and tables showing
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Why is it a problem in SA
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In the discussion provide indication on what made it to be so large
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How it can be controlled
Provide a brief explanation on the background of the public sector wage bill in South
Africa
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Why it has become topical
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Define relevant terms, that is public sector wage bill and expenditure control measure
on January 1, 2019, South Africa's first-ever national minimum wage came into effect. The legislation stipulated a minimum national rate of R20 per hour, or R3500 per month, depending on the number of hours worked. Some economists warned that it may depress SA's already high unemployment rate further by making it more expensive to hire workers. Using your knowledge of basic economic theory, illustrate and explain with the aid of a graph why some economists might have given such a warning?
A special shoe manufacturer ABC Co. has costs of production as follows :
Quantity0123456
Total Variable Cost ($)0507090140200360
a. ABC Co.’s fixed costs are $100. Calculate average fixed costs, average variable costs, average total costs and marginal costs at each level of production. (2 Marks)
b. Draw the company’s cost curves in a clearly labelled graph. (1 Mark)
c. The price of ABC shoe is $50. What are the company’s profits? In case of loss, should the CEO continue operations or decide to shut-down? Which would be a wise decision? Explain. (1 Mark)
d. The chief financial officer tells the CEO that it’s better to produce only one shoe this month. What could be the reason for this advice by the CFO? What are the firm’s profits at that level of production? Is this the best decision? Explain. (1 Mark)
Problem 3
Consider a market with two firms. Each firm is located at one end of a line with lenght one.
There is a mass one of consumers. The location of each consumer is given by 0 < x < 1
which is uniformly distributed (with density 1). Firms have no cost of production and set
price simultaneously.
a) Derive the demand for each firm by identifying the location of the indifferent con-
sumer for each price pair. Assume that all consumers know about both products.
e) Consider again that consumers can only buy after receiving an ad. Suppose there
is an avdertising company that offers the firms to coordinate the targeting of their
ads. The company suggests to inform all consumers with a location between 0 and
0.4 the product of the firm at location 0 and to all consumers between 0.6 and 1
the product of the firm at location 1. Determine the optimal prices for both firms
if they accept this offer. What are the resulting profits?
