Microeconomics Answers

We have the following information about a country’s economic performance in 3 consecutive years:

 GDP at current prices

GDP at previous year’s prices

year 0

20 000

18 000

year 1

30 000

25 000

year 2

45 000

40 000

Answer the following questions:

a)  From year 0 to year 2 the nominal GDP increased by %.

b)  Based on the GDP deflator the prices increased % from year 0 to year 2.

c)  The real GDP increase from year 0 to year 2 is % (rounded to one decimal).

d)  In year 0 the inflation rate (price increase relative to the previous year) was % (rounded to one decimal again).

Q1) It takes you half an hour to do a math assignment and two hours to do a micro assignment. What is the opportunity cost of you doing two math assignments?

(B)Find equilibrium Price and quantity from the following demand and supply functions.

          I.           P=80-Q(demand)                                     P=20+2Q (supply)

Q2.(A) Given the following functions

           Q=10-2P²                               Q= 5+3P

Find

i)                   Nature of each function

ii)                 Market price and Market quantity

iii)               Elasticity of Q_d and Q_s at equilibrium price

Q1.(A) Find equilibrium Price and quantity from the following demand and supply functions

        I.           D=40-4P                                                  S= 10+2P

(B)The demand function is Q= 20-5P estimate the elasticity of demand at P=2 and P=3

Equilibrium in market 

The widespread effects of the Covid-19 pandemic have been devastating and

economically disruptive in South Africa. Covid-19 has defied what is deemed to

be ‘normal’ in terms of conducting business. It is clear that the threat of Covid-

19 has affected the production of many commodities due to the stringent

measures that have been put in place to contain the virus. The soft drink industry has almost come to a standstill. Most economic and social commentators feel

that the Covid-19 pandemic effect on the economy is going to exacerbate

widespread poverty, in an economy that is already highly unequal, as firms

downsize, and people lose their source of income

1.1 Using two (2) separate graphs, explain how the market for soft drinks

will be affected by the issues mentioned in the case study. (16)

1.2 Mention two (2) other factors that can cause each of the changes

identified

Mrs. Patricia Banda is the owner-manager of a small restaurant specializing Zambian tradition  cuisine. The daily demand and supply schedules are given below, over the relevant ranges of 𝑃 and 

𝑄.

𝑄^D= 𝑃² − 175𝑃 + 7500

𝑄^S= 𝑃² + 25𝑃 − 1250

Mrs Banda does not identify the equilibrium price from the onset, instead, she starts from some 

arbitrary price and continues to make daily adjustments depending on the surplus or deficit from the previous day. That is, the price adjustment is given by

dp/dt = 0.01 (𝑄^D − 𝑄^s)

a. Find the long run equilibrium price, 𝑃^*

b. If price is initially 20, deduce an equation for price, 𝑃, at time 𝑡.

c. Comment on the behaviour of price P in the near future.

Question Three 

Given the production function 𝑄 = 𝐾³ + 3𝐿²,

a. Describe the behaviour of the marginal productivity of labour as more capital is added.

b. what is the marginal rate of technical substitution between capital and labour?

Suppose that you are the Manager of a soccer stadium and you are

responsible for the sale of tickets. Two matches are scheduled to be

played during the next fortnight, the first between team X and team Y.

Market research indicates that you can sell 40 000 tickets for the X-Y

clash at R10 each, or 30 000 tickets at R20 each. Which option would

you choose? What is the arc price elasticity of the demand for tickets for

this particular game?

The widespread effects of the Covid-19 pandemic have been devastating and

economically disruptive in South Africa. Covid-19 has defied what is deemed to

be ‘normal’ in terms of conducting business. It is clear that the threat of Covid-

19 has affected the production of many commodities due to the stringent

measures that have been put in place to contain the virus. The soft drink industry

has almost come to a standstill. Most economic and social commentators feel

that the Covid-19 pandemic effect on the economy is going to exacerbate

widespread poverty, in an economy that is already highly unequal, as firms

downsize, and people lose their source of income.

Using two (2) separate graphs, explain how the market for soft drinks

will be affected by the issues mentioned in the case study