Microeconomics Answers

Piyush spends his entire income between food grains and books (both of which are normal

goods) Pandemic causes a large increase in the prices of food grains in India. i. Show the effect of Pandemic on Piyush's budget constraint.

ii.

Show the effect of Pandemic on Piyush's optimal consumption

substitution effect outweighs the income effect for books.

bundle assuming that

iii. Show the effect of Pandemic on Piyush's optimal consumption bundle assuming

income effect outweighs the substitution effect for books.

that

With units of output 500, AVC $15, ATC $35, and MC $10, find total fixed cost, total variable cost, total cost and marginal cost.

During COVID-19 pandemic the Ayurvedic medicine have an in elastic demand and electronic device have an elastic demand imagine the technology advancement double supply of both product i.e. quantity supplied at each price is twice as it was earlier what will be the aquarium price and quantity in each market which product experiences a larger change in price and which product experience in larger change in quantity

a. 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.

b. Do you agree with this statement, MC curve crosses the ATC curve at its minimum?

Why?

c. How does an increase in interest rate affects household savings? Explain with the help of

an example with graph

“Government should regulate mergers between firms” Give reason in favor and against 

this statement. (4.75)

b. Draw the diagram with demand and supply curves for an importing country. What is the 

consumer surplus and producer surplus before trade is allowed? What will be the 

consumer and producer surplus with free trade? Explain the change in total surplus. (7)

What is the consumer surplus and producer surplus before trade is allowed?

Suppose government imposes $2 tax on each liter of petrol purchased and all petrol vehicle users require paying the same.

i. Draw a demand and supply diagram of the market for petrol without the tax. Show the price paid by consumers, price received by producers and the quantity of petrol sold. What is the difference between price paid by consumers and received by producers?

ii. Draw a demand and supply diagram of the market for the petrol with the tax. Show the price paid by consumers and received by producers and the quantity of petrol sold. What is the difference between the price paid by consumers and received by producers? Has the quantity of petrol sold increased or decreased? (6, 6)

b. What is the Deadweight loss of taxation? How does the deadweight loss change with the change in size of the tax? Give reasons.

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?

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?

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?

Suppose that labor is the only input used by perfectly competitive firm. The firm’s production function is as follows:

Days of Labour

1

2

3

4

5

6

7

Output

7

13

19

25

28

29

29

i. Calculate the marginal product for each additional worker.

ii. Each unit of output sells for $10. Calculate the value of the marginal product of each worker.

iii. Compute the demand schedule and firms demand curve showing the number of workers hired for all wages from 0 to $100 a day.

a. Draw a consumer budget constraint and indifference curves for Pepsi and Pizza. Find out the optimal consumption choice when consumer has income of $2000 and the price of Pepsi is $5 per bottle and the price of per pizza is $10.What is the marginal rate of substitution at this optimum? (6) b. Piyush spends his entire income between food grains and books (both of which are normal goods) Pandemic causes a large increase in the prices of food grains in India.

i. Show the effect of Pandemic on Piyush’s budget constraint.

ii. Show the effect of Pandemic on Piyush’s optimal consumption bundle assuming that substitution effect outweighs the income effect for books.

iii. Show the effect of Pandemic on Piyush’s optimal consumption bundle assuming that income effect outweighs the substitution effect for books.