Microeconomics Answers

Given a consumer who has a utility function described as U=2x^2. The consumer buys positive amounts of the good(x) whose market price is $18 per unit. How much of good X does the consumer buy and consume?

Derive the consumer satisfaction level in the law of equal marginal utility when there are two commodities A&B the price of A=2 and B=3 Rs the consumer income is 24.

Suppose a P1,000 tax was levied on buyers rather than the sellers.
The original equilibrium quantity is 750 units and the equilibrium price is P7,000.
1. Analyze the tax burden using demand, supply and elasticity (Hint: the demand curve shifts vertically downward by the amount of the tax). Label your graph properly then answer the following and show in your graph;
The new price for the commodity
If buyers pay taxes of P1,000, what is the after tax price?
How much do consumers pay with the tax? how much do they bear of the tax burden?
Sellers end up receiving how much? and bear how much of the tax burden.
What is your conclusion based on your analysis?
2. Now suppose the demand curve is more inelastic than above with the same tax and equilibrium quantity and price. Analyze the effect of tax if the demand is more inelastic. What will happen to the tax burden? Do the same thing in a separate graph as above. State your conclusion based on your analysis

Alexi and Tony own a food truck that serves only two items, street tacos and Cuban sandwiches. As shown in the table, Alexi can make 80 street tacos per hour but only 20 Cuban sandwiches. Tony is a bit faster and can make 100 street tacos or 30 Cuban sandwiches in an hour. Alexi and Tony can sell all the street tacos and Cuban sandwiches that they are able to produce.
a. For Alexi and for Tony, what is the opportunity cost of a street taco? Who has a comparative advantage in the pro- duction of street tacos? Explain your answer.

. (a) The demand and supply equations for a good (X) are given by
Qd= 4000 - 25p and Qs = -2000 + 35P respectively, where P = price.
(i) Draw the demand and supply curves for good X on a graph.


(ii) Find the equilibrium price and quantity.
(iii) The government imposes a specific sales tax of R20 per unit on good X. Show the resulting effect on the graph and find the new equilibrium price and quantity.


(iv) Comment on the tax incidence (on the consumer and producer).


(v) Calculate the Price Elasticity of Demand when price rises from the original equilibrium at (ii) to the new equilibrium at (iii).

The following relations describe monthly demand and supply for a computer support service catering to small business:

Qd = 1,500 – 5 P

Qs = -500 + 5 P

Where Q is the number of business that need services and P is the monthly fee, in dollars

Find the equilibrium price/output level

Calculate point elasticity of demand for this demand function. Is it elastic, inelastic or unitary elastic?

Calculate the Total Revenue at the equilibrium price

Consider the cost function of Bamburi Cement Ltd given by Total cost (TC) = 4q2(squared)+ 16. Find the variable cost, fixed cost, average cost, average variable cost, average
fixed cost and the marginal cost for Bamburi Cement Ltd. ( 10 marks)

Car parking charges.
A local council raises the price of car parking from E3 per day to {5 per day and finds that usage of car parks contracts from 1,200 cars a day to 900 cars per day.
Calculate the price elasticity of demand for this price change and calculate whether total revenue from the car park rises or falls.

Suppose you build a model of the market for umbrellas, in which the
predicted number of umbrellas sold by a shop depends on their colour
and price, ceteris paribus.
1. The colour and the price are variables used to predict sales. Which
other variables are being held constant?

Which of the following questions do you think this model might be able
to answer? In each case, suggest improvements to the model that
might help you to answer the question.
2. Why are annual umbrella sales higher in the capital city than in
other towns?
3. Why are annual umbrella sales higher in some shops in the capital
city than others?
4. Why have weekly umbrella sales in the capital city risen over the
last six months?