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8. A case study in this chapter discusses the fed- eral minimum-wage law.
a. Suppose the minimum wage is above
the equilibrium wage in the market
for unskilled labor. Using a supply- and-demand diagram of the market for unskilled labor, show the market wage, the number of workers who are employed, and the number of workers who are unem- ployed. Also show the total wage pay- ments to unskilled workers.
b. Now suppose the secretary of labor proposes an increase in the minimum wage. What effect would this increase have on employ- ment? Does the change in employment depend on the elasticity of demand, the elas- ticity of supply, both elasticities, or neither?
c. What effect would this increase in the mini- mum wage have on unemployment? Does the change in unemployment depend on the elasticity of demand, the elasticity of supply, both elasticities, or neither?
From the given Demand schedule for air tickets, calculate elasticity of demand
Price of Air Quality Ticket (Per ticket) (Tickets per month)
100000 5000
120000 3500
Elaborate the term elasticity of supply and explain any three factors that determines elasticity of supply
Draw the indifference curve for someone deciding how to allocate time between work and leisure.
Elaborate the term total revenue and marginal revenue also calculate TR & MR in the given table
Price Output Total Revenue Marginal reve
20 1
18 2
16 3
14 4
12 5
Assume that a consumer consumes two commodities X and Y and makes five combinations for the two commodities
Combinations. X. Y.
A. 25. 3
B. 20. 5
C. 16. 10
D. 13. 18
E. 11. 28
Calculate marginal rate of Substitution and explain the answer.
Consider a profit maximizing firm whose total cost function is given as TC=Q2 +
20Q, consumers of the firm’s products derive benefits from the good according to the
function MB=500 – 12Q. Production of the product has negative effects on the
environment approximated at Ksh. 300 per unit.
(i) Determine the efficient level of output for the firm without government intervention
If the equation for a market demand curve is Qd = 15 – 0,2P and the equation for a market supply curve is Qs = ̶ 1 + 0,6P, the market equilibrium price and quantity are?
If the equation for a market demand curve is Qd = 15 – 0,2P and the equation for a market supply curve is Qs = ̶ 1 + 0,6P, the market equilibrium price and quantity are?
QUESTION 2
Babasiga.com, the online bookseller, wants to increase its total revenue. One strategy is to offer a 10% discount on every book it sells. Babasiga.com knows that its customers can be divided into two distinct groups according to their likely responses to the discount. The accompanying table shows how the two groups respond to the discount.
Group A
(sales per week)
Group B
(sales per week)
Volume of sales before the 10% discount
1.55 million
1.50 million
Volume of sales after the 10% discount
1.65 million
1.70 Million
a.Using the midpoint method, calculate the price elasticities of demand for group A and group B
(3Marks)
