Microeconomics Answers

Imagine a society that produces military goods and consumer goods, which we will

call “guns” and “butter.”

a. Draw a production possibilities frontier for guns and butter. Using the concept

of opportunity cost, explain why it most likely has a bowed-out shape.

b. Show a point that is impossible for the economy to achieve.

c. Show a point that is feasible but inefficient.

d. Imagine that the society has two political parties, called the Hawks (who want

a strong military) and the Doves (who want a smaller military). Show a point

on your production possibilities frontier that the Hawks might choose and a

point that the Doves might choose.

e. Imagine that an aggressive neighboring country reduces the size of its military.

As a result, both the Hawks and the Doves reduce their desired production of

guns by the same amount. Which party would get the bigger “peace dividend,”

measured by the increase in butter production? Explain.

If a product has few substitutes what does it mean?

How can taxes on products influence production spending

Suppose that the Market for Cigarette is facing the Demand function Q = 20 – 2P and Supply function Q = 10.5 + 0.5P: a) What is the effect on the Equilibrium Price and Quantity when Government imposes a 7% of tax as percent of equilibrium price on each unit of Cigarette produced? [5 marks] b) What is the price elasticity of demand at equilibrium after tax and comment on the answer? [5 marks

You were planning to spend Saturday working at your part-time job, but a friend asks

you to go watching movie.

a. What is the true cost of going for watching movie?

b. Now suppose you had been planning to spend the day studying at the library.

What is the cost of going watching movie in this case? Explain.

The relationship between a consumer’s income and the quantity of X, he consumes is given by the equation M=1000Q2

Calculate his point price income elasticity of demand for X when his income is 64,000.

1.           Given market demand Qd = 50 - P, and market supply P = Qs + 5

  A) Find the market equilibrium price and quantity?

   B) What would be the state of the market if market price was fixed at Birr 25 per unit?

   C) Calculate and interpret price elasticity of demand at the equilibrium point.

Consumer spends $360 per week on two goods X and Y. PX=$3 and PY=$2.Hisutility

functionisU=2X2Y.

What quantities of X and Y does he buy each week in equilibrium?.

The relationship between a consumer’s income and the quantity of X ,he consumes is

given by the equation M=1000 Q squared

Calculate his point price income elasticity of demand for X when his income is 64,000.

A consumer’s demand curve for X is given by the equation P=100-squarerootofQ.

Calculate his point Price elasticity of demand when the price of Xi s 60.