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Problem 2. 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?
In the following question you are asked to determine, other things equal, the effects of a given change in a determinant of demand or supply for product X upon (1) the demand (D) for, or supply (S) of, X; (2) the equilibrium price (P) of X; and (3) the equilibrium quantity (Q) of X.
A decrease in the price of a product that is a complement to X will
a) Define marginal utility. Provide an argument why to maximize total utility of good x and good y, the consumer should consume until the ratio of marginal utilities over price is the same across both goods.
The current world production of oil is 350 million barrels per day and the current world price of oil is N$850 per barrel. The price elasticity of demand (ε) is -0.3 and the elasticity of supply (η) is 0.1. Shiwa Investment is planning to enter the world oil market with a daily production of 13 million barrels of oil per day. For simplicity, assume that the supply and demand curves are linear
Beer and wine are two substitute goods. What happens to the supply, demand, quantity supplied and quantity demanded of wine and beer due to the following events? Explain diagrammatically. a) Increase in the price of beer b) Increase in the price of barley (ingredient for beer) c) A decrease in the income of the consumers.
Indian government realized free market price of wheat is very low. To increase farmers’ welfare government took the following steps: a) Suppose the government imposes a binding price floor in the wheat market. How this policy will affect the price, quantity demanded and quantity supplied of wheat. b) Wheat farmers complained that this binding price floor reduced their revenue. Explain how it reduced their revenue. c) In response to wheat farmers’ complaints, government purchases all the surplus quantity at the minimum price decided by the government. Who are the beneficiaries and who loses due to this price floor?
What affects the price elasticity of demand for a good
Akua is a School of Agriculture graduate and consumes 2 goods: Yoghurt and Bread. Akua also earns a typical student income from the parents, GHS 400 a month. She can either spend it all on Yoghurts and get 50, or she can spend it all on Bread and get 200 loaves.
Now assume that Yoghurt and Bread are compliments for Akua. For her to consume all her income of GHS 400, and the prices used in part a. What if Yoghurt is so SOUR that Akua needs 2 loaves of bread for every Yoghurt that she consumes?
Suppose that the production function is given as follows:
TPL = 10L + 5L2 + L3
Find the total product, Marginal product and average product when L = 5.
Akua is a school of Agriculture graduate and consumes 2 products:yoghurt and bread.Akua also earns a typical student income from the parent .400 cedis a month.She can either spend all on yoghurt and get 50,or she can spend it all on bread and get 200 loaves. Given the information construct the equation for Akua's budget line
