Microeconomics Answers

TRUE/FALSE

1. Suppose that aggregate demand increases starting from an equilibrium income level. this implies up upwards pressure on the average consumption levels and output that increases. Since the standard of living of employees decreases owing to the higher prices, that employees will start to negotiate higher nominal wages. this is it called a short-run demand adjustment process
2. The interaction between AS and AD over the long run is more complex.It entails that over a period of time the adjustments (shifts) that are set in motion tend to lead the country and more specifically production and employment, to a cyclically stable or cyclically neutral level of “full” or saturated employment.
3. The value of the multiplier(K) depends on factors such as marginal propensity to save (MPS) the marginal propensity to import (MPX) and the marginal tax rate (MTR). The value of the multiplier is therefore in practice between the values of a 1 and 2

There are various main objectives in the macroeconomics policy, each of which contributes to an explanation and understanding of macroeconomics. Briefly define the following macroeconomic objectives and explain in your own words how each can be applied to improve the economy:

1. Economic growth and increasing employment (5)
2. Stability of output and employment levels (5)
3. Stable and low inflation (5)
4. Distributional and equity objectives and the reduction of inequality (5)
5. Economic development and poverty reduction (5)

Out of 25

The price elasticity of demand for urban transitfares has been estimated to lie between

-0.1 and -0.6. Based on these results, what isthe economic argument forraising transit

fares? What political arguments might local governments and transit authorities

encounterin opposition to these economic arguments?

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 milllion tons per year

a) is rice an inferior good, a necessity or a luxury? explain.

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

•Given the following set of simultaneous equations for two related goods,xandy, find the equilibrium conditions for each market if the consumers’ income isi=600. What types of goods arexandy?

•Q_dx= 22-3P_x+P_y+ 0.1i

• Q_sx=-5+15P_x

•

•Q_dy=32+2P_x-4P_y+0.1i

•Q_sy=-6+32P_y

A. Given the demand function 𝑄𝑑 = 15 − 0.2𝑃, find quantity demanded when price is GH¢ 2.00, GH¢ 5.00, GH¢ 7.00, and GH¢ 10.00. Present your results in a table.

B. Demand function for good X is given as Qdx = 6 – 0.2Px + 0.28Pz – 0.45Py

where Qdx is quantity demanded for good X, Px is price of good X, Py and Pz are

prices of related goods. Y is good Y and Z is good Z.

i. What type of good is Y? Explain your answer. ii. What type of good is Z? Explain your answer.

QUESTION THREE

With the aid of diagrams, explain the difference between increase in demand and increase in quantity demanded.

A firm is faced with undertaking one of these four projects in 2022 – open new branch, introduce another product, purchase a brand new vehicle, or increase workers’ salary. The costs and expected benefits of the projects are presented in the table below.

  Activity

Branch Product Vehicle Salary

Direct cost Benefit (GH¢) (GH¢) 380 390 400 400 350 392 422 425

        Use the information provided in the table to answer the following questions.

a) Compute the net benefit of each project using the direct cost.

b) Find the opportunity cost of each project.

c) Compute the net benefit of the projects using the opportunity cost.

Assume that a consumer consumes two commodities x and y and makes give combination for the two commodities? Explain its In your own words

Given the Demand function Q1 = 100-P1+0.75P2-0.25P3+0.005Y Calculate the price, income and

cross-price elasticity of demand and interpret the result respectively at P1=8, P2=15, P3=30 and

also Y=8,000 �