Microeconomics Answers

“For supply to respond to an increase in demand the supplier must be aware that demand has indeed increased, however supply may not respond immediately to the change in demand”, Describe the factors that may attribute to this situation.

Rising peanut prices have forced peanut butter makers to raise the price of peanut butter from $2 to $3 per jar, causing quantity demanded to fall. In addition, sales of jelly also dropped by 15%. Soon thereafter, makers of chocolate spread dropped its price from $4 to $3 per jar. This resulted in a further decline in peanut butter sales by 20%. a) What is the cross elasticity of demand between peanut butter and jelly (use the midpoint method)? Are these two products complements or substitutes? b) What is the cross elasticity of demand between peanut butter and chocolate spread (use the midpoint method)? Are these two products complements or substitutes?

The price elasticity for rice is estimated to be -0.4 and the income elasticity is 0.8. At a price of $0.40 per pound and a per capita income of $20,000, the demand for rice is 50 million tons per year.

a. Is rice an inferior good, a necessity, or luxury? Explain

b. If per capita income increases to $20,500, what will be the quantity demanded of rice?

c. If the price of ruce increases to $0.41 per pound and income per capita remains at $20,000, what will be the quantity demanded?

Firm X : sells goods to firm Y to produce its service of value of 200€, sells good to final consumers at 500€, pay wages of 200€

Firm Y : sells goods to firm X to produce its service of value of 150€, sells good to final consumers at 200€, it sells abroad for 100, pay wages of 150€

a) Estimate GDP using production and income methods.
b) Assume that Firm X decides to transfer its production abroad. Would the GDP of the country under analysis increase, decrease or remain the same and why ?
c) Assume that Firm Y decides to continue its production in the country but that foreign multinatinal corporation decides to buy it. Would the GDP of the country under analysis increase, decrease or remain the same and why ?

The market for lemon has 10potential consumers ,each having an individual demand curve ,p =101-10Q,where p is price in a dollars per cup and Qi is the number of cups demanded per week by the ith consumer . Find the market demand curve using algebra.Draw an individual demand curve and the market demand curve.What is the quantity demand by each consumer and in the market as a whole when lemon is priced at p=$1/cup?

The price of oil is $30 per barrel and the price elasticity is constant and equal to-0.5. An oil embargo reduces the quantity available by 20 percent. Use the arc elasticity formula to calculate the percentage increase in the price of oil.

What is highly elastic demand

Consider a multimarket contact between 2 firms competing on price on 2 markets. The demand curve for each market is given by Q = 1 − P, where Q is the total demand and p is the market price. Marginal costs are zero for all firms. (a) Show that �3 ∗ = 0 for all firms enumerated by � is the Nash equilibrium for the oneshot game. From now on, assume that the firms compete for an infinite number of periods. Each firm’s discount factor is � ∈ (0,1). (b) Find the minimal discount factor that would sustain collusion for the case when all firms sell to all markets. (c) Find the minimal discount factor that would sustain collusion for the case when each firm is present in only one market. (d) Which type of collusion is easier to sustain? 

The price of oil is $30 per barrel and the price elasticity is constant and equal to -0.5. An oil embargo reduces the quantity available by 20 percent. Use the arc elasticity formula to calculate the percentage increase in the price of oil.

If the nominal GDP for this year is higher than the GDP of Base year 1993 .does it necessarily means the economy is producing more ?