Microeconomics Answers

How did an export ban on onion by India affected the price of local onion in Bangladesh

The price at which a perfectly competitive firm sells its product is determined by

In 2001 an outbreak of foot and mouth disease in Europe led to the burning of millions of cattle carcasses. What impact do you think this had on the supply of cattle hides, hides prices, the supply of leather goods, and the price of leather goods

Suppose you are the economic adviser of a company producing three brands of mobile phones; Nokia 10 , Samsung X and iPhone Z. Suppose further that, your company currently sells 120 units of iPhone Z at ¢800 per unit, 150 units of Samsung X at ¢800 per unit and 200 units of Nokia 10 at ¢100 per unit, but in a bid to maximize profit, the company’s managing director proposes an increase in price of Samsung X from ¢800 to ¢1000 per unit for which quantity demanded is anticipated to fall from 150 to 100 units; iPhone Z from ¢800 to ¢1200 per unit for which quantity demanded is anticipated to fall from 120 to 100 units; and Nokia 10 from

¢100 to ¢200 per unit for which quantity demanded is expected to fall from 200 to 100 units.

1.Using the mid-point formula, compute the price elasticity of demand for each brand.

2. From your answer in i, what is the type and economic interpretation of each brand’s value of elasticity.

Question 3

1. Market systems may not allocate resources efficiently for many reasons. This is known as market failure Governments intervene in order to correct such market failures. Imposition of price controls is one of such interventions. Using relevant diagrams, discuss the use of (1) maximum prices and (2) minimum price controls in markets and their consequences in the context of the Eskom case above [20 marks]
2. The effect of subsidising a product/service, to a large extent, depend on the price elasticity of that product/service. Draw two diagrams, one with a relatively inelastic demand curve and one with a relatively elastic demand curve. Explain the different effects of the introduction of a subsidy on electricity in terms of price and quantity. [10 Mark]

suppose you are the economics adviser of a company producing three brands of mobile phones

Question 3

1. Market systems may not allocate resources efficiently for many reasons. This is known as market failure Governments intervene in order to correct such market failures. Imposition of price controls is one of such interventions. Using relevant diagrams, discuss the use of (1) maximum prices and (2) minimum price controls in markets and their consequences in the context of the Eskom case above [20 marks]
2. The effect of subsidising a product/service, to a large extent, depend on the price elasticity of that product/service. Draw two diagrams, one with a relatively inelastic demand curve and one with a relatively elastic demand curve. Explain the different effects of the introduction of a subsidy on electricity in terms of price and quantity. [10 Mark]

As the price of fresh grapes (a substitute in production for wine) decreases, ceteris paribus:

the supply of wine will decrease.

the supply of wine will increase.

the demand for wine will decrease.

the demand for wine will increase.

the supply of wine will be unaffected.

1. Suppose you are the economic adviser of a company producing three brands of mobile phones; Nokia 10, Samsung X and iPhone Z. Suppose further that, your company currently sells 120 Units of iPhone Z at ¢800 per unit, 150 units of Samsung X at ¢800 per unit and 200 units of Nokia 10 at ¢100 per unit, but in a bid to maximize profit, the company’s managing director proposes an increase in price of Samsung X from ¢800 to ¢1000 per unit for which quantity demanded is anticipated to fall from 150 to 100 units; iPhone Z from ¢800 to ¢1200 per unit for which quantity demanded is anticipated to fall from 120 to 100 units; and Nokia 10 from ¢100 to ¢200 per unit for which quantity demanded is expected to fall from 200 to 100 units.

I. Using the mid-point formula, compute the price elasticity of demand for each brand. (6 marks)

II. From your answer in i, what is the type and economic interpretation of each brand’s value of elasticity. (4 marks)

1. Suppose you are the economic adviser of a company producing three brands of mobile phones; Nokia 10, Samsung X and iPhone Z. Suppose further that, your company currently sells 120 Units of iPhone Z at ¢800 per unit, 150 units of Samsung X at ¢800 per unit and 200 units of Nokia 10 at ¢100 per unit, but in a bid to maximize profit, the company’s managing director proposes an increase in price of Samsung X from ¢800 to ¢1000 per unit for which quantity demanded is anticipated to fall from 150 to 100 units; iPhone Z from ¢800 to ¢1200 per unit for which quantity demanded is anticipated to fall from 120 to 100 units; and Nokia 10 from ¢100 to ¢200 per unit for which quantity demanded is expected to fall from 200 to 100 units.

I. Using the mid-point formula, compute the price elasticity of demand for each brand. (6 marks)

II. From your answer in i, what is the type and economic interpretation of each brand’s value of elasticity. (4 marks)