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Assume you are the Minister of Finance and you need to raise revenue
by taxing a specific good. Would you tax a good with high price elasticity
of demand or one with low price elasticity of demand? Explain.
Explain the shape of the marginal revenue curve in each of the following
cases:
Perfect competition
Monopoly
Use your knowledge of supply-and-demand curves and elasticity to
explain why farmers as a group may prefer bad weather to good weather,
even though an individual farmer prefers good weather to bad
weather.
Use demand and supply curves to illustrate and explain why rare items,
such as the Mona Lisa painting by Leonardo da Vinci, are sold at such
high prices.
Prove that the utility approach and the indifference-curve approach yield
the same consumer equilibrium. Consider two goods, A and B, to explain
the utility approach and the indifference curve approach
Here is the question: Having spent the equivalent of a thousand dollars or so on the airline tickets, hotel room, and concert tickets, should the couple actually go to the Red Hot Chili Pipers concert? Use sound economic reasoning to explain your answer. In particular, identify the concept that is the basis for your answer; explain that concept in general; and then apply that concept to this particular situation.
What is effect on producer surplus if taste changes in favor of organic food. Explain it
diagrammatically. Will it affect producer surplus in the market for organic food?
During the Covid-19 pandemic, the Ayurvedic medicines have an inelastic demand and
electronic devices have an elastic demand. Imagine that technological advancement
doubles the supply of both products (i.e. quantity supplied at each price is twice as it was
earlier)
i. What will be the equilibrium price and quantity in each market?
Calculate the price elasticity of demand using the mid-point Method from the following
information.
Price 20 30 40
Quantity 90 60 45
Would your result be different if instead you consider the total revenue approach to
calculate the price elasticity of demand? (5.75)
b. Show that a minimum wage set above the market clearing wage rate causes excess supply
of labour. Why would a government impose minimum wage despite knowing its effect on
unemployment? (6)
c. What is effect on producer surplus if taste changes in favor of organic food. Explain it
diagrammatically. Will it affect producer surplus in the market for organic food?
During the Covid-19 pandemic, the Ayurvedic medicines have an inelastic demand and
electronic devices have an elastic demand. Imagine that technological advancement
doubles the supply of both products (i.e. quantity supplied at each price is twice as it was
earlier)
i. What will be the equilibrium price and quantity in each market?
ii. Which product experiences a larger change in price and which product experiences
larger change in quantity. (9)
b. Do you agree with this statement, MC curve crosses the ATC curve at its minimum?
Why? (4)
c. How does an increase in interest rate affects household savings? Explain with the help of
an example with graph
