Microeconomics Answers

A ceiling price fixed above the equilibrium price creates:

a) A shortage

b) A black market

c) A binding price

d) None of the above

Scientists have revealed that the consumption of oranges reduces the risk of diabetes and at the same time the government has banned the use of fertilizers in the orange farming resulting into loss of productivity. What happens to the equilibrium quantity of oranges?

a) Increases

b) Decreases

c) Remains Constant

d) All the above are possible

How will a crop failure only in Bihar affect the revenue of farmers there if rest of India experiences a normal crop?

1 point

a) Revenue of farmers will decrease in Bihar

b) Revenue of farmers will increase in Bihar

c) Revenue of farmers will remain unaffected in Bihar

Farmer Jones and Farmer Smith graze their cattle in the same field. If there are 50 cows grazing in the field, each cow produces $50,000 of milk over its lifetime. If there are more cows in the field, then each cow can eat less grass and its milk production falls. With 70 cows in the field, each produces $85000 of milk; with 100 cows, each produces $1,10,000 of milk. Cows cost $1500 each.

a).        Assume that Farmer Jones and Farmer Smith can each purchase either 25 or 50 cows, but that neither knows how many the other is buying when she makes her purchase. Calculate the pay-offs of each outcome.

b).       Fill in the pay-offs in a 2 × 2 decision box.

c).       What is the likely outcome of this game? What would be the best outcome? Explain.

d).        There used to be more common grazing land than there is today. Why? 

The demand and supply functions for three goods are given as follows:

D_x=100-3P_x+P_y+3P_z

D_y=80 +P_x-2P_y-2P_z

D_z=120+3P_x-P_y-4P_z

S_x=-10+P_x

S_y=-20=3P_y

S_z=-3+2P_z

Q1: Determine the equilibrium prices and quantities of all three goods.

·  The government decides to:

a.  Impose a 25% tax on X

b.  Impose a 5Rs unit Tax on Y

c.  Gives a 10% subsidy on good Z

· Analyze the impact of each of these three policies separately on equilibrium prices and Quantities.

·  Also calculate changes in consumer and producer surpluses and the amount of revenue earned by the government.

Q2: Repeat this exercise when polices (a, b),(b,c) & (a, b,c) are jointly implemented. Which policy choice is best? Why?

Q:3 Provide theoretical justification (using diagrams) of all results obtained.

Qd = 1500 - 5P

Qs = -500 + 5P

Find

P, Q

Problem 2: We consider an auction with two bidders. Each bidder's valuation v is drawn as follows: 

• With probability the valuation v is distributed uniformly between 0 and 2.

 • With probability 3 the valuation v is distributed uniformly between a and 1. 

1. If we run a first price auction, what is the optimal bid function of a bidder with valuation v?

 2. What is the expected revenue of the seller? 

3. Suppose now that there is only one bidder and that the seller runs a second price auction with a reserve price. Calculate the optimal reserve price.

equilibrium is when

An economics lecturer said when the price of a film show falls most students will go and watch, and a student said the value does not change. who is correct?

what is the relationship between Average product and marginal product under constant return to scale