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Much of the demand for U.S. agricultural output has come from other countrie. in 1998 the total demand for wheat was Q=3244-283P. Of this total domestic was QD=1700-107P and domestic supply was QS=1944-207P. Suppose the export demand for wheat falls by 40 percent.
a. U.S. farmers are concerned about this drop in export demand. What happens to the free-market price of wheat in the United States? Do farmers have much reason to worry?



Discuss each of the following statements from the standpoints of equity and efficiency.


“Everyone in society should be guaranteed the best health care possible.”


“When workers are laid off, they should be able to collect unemployment benefits until they find a new job.”



  1. A basic assumption about consumers in microeconomics is that they have preferences over different baskets of goods. Explain the concepts “preference”, “preference order”, and “basket of goods”.
  1. What is the marginal rate of substitution, MRS? State the definition and explain, in words, what it means

2.MRS will have an influence on the shape of an indifference curve. What influence?



The national poultry producers published the following estimates of demand and supply relationships for plucked chicken:

 

QD = 60.000 – 10.000P

QS = 20.000P

 

a) Calculate the perfect competition equilibrium price and quantity that will result in the market for plucked chicken (6marks)

 

b) If the poultry industry was organized as a cartel, calculate the price and quantity that would maximize profits for cartel members.

(Hint: The Total Revenue function for the cartel would be: TR= 6Q – 0.0001Q2, and the Supply function could also be expressed as follows: P= 0.00005Q) (4.5marks)

 

c) Comparing your answers in parts a) and b), what is the effect on price and output in this market when the cartel is allowed to operate? What is the effect on consumer surplus (do not calculate, only describe/explain)? (4.5 marks)

Which of the following statements are correct?



a. The difference between government spending and borrowing is called the budget deficit.



b. If government finances part of its spending from borrowing from the central bank, this is called inflationary financing.



c. Expansionary fiscal policy implies that taxes must increase, and government spending must be limited.




Suppose a Monopolist faces the following Total Cost and Demand functions:


TC = 100 +2Q


P = 25 - 0.25 What is the firm’s profit-maximizing position?



Which of the following statement(s) is/are correct?



a) In South Africa, money is created exclusively by the South African Reserve Bank.


b) The stock of money consists largely of bank deposits and banks create these deposits by making loans.


c) Money creation by banks is constrained by the demand for bank loans.


d) The South African Reserve Bank uses changes in interest rates as an attempt to regulate the rate at which new money is created.


e) The stock (quantity) of money in the economy is essentially determined by the interaction of the interest rate and the independent supply of money

4.     Suppose the nominal gross national product of Ethiopia in 2010 and 2011 together with the GNP deflator are specified as follows:

Year                           Nominal GNP (in dollar)                   GNP deflator (price index)  

2010                                       8,000,000,000,000                                         100

2011                                       10,000,000,000,000                                       200

                                      

Direction: Based on information provided above, answer questions that follow:

A.   Compute the Real GNP of Ethiopia both for the years 2010 and 2011.

B.    Determine the percentage (%) increase in Nominal GNP in 2011.

C.   Determine the percentage (%) increase in Real GNP in 2011.

D.   In which year there is higher inflation based on the above information? Why? 



You own a printing firm. Two of your senior managers provide you with advice. The first manager states that your company is losing money for every unit that is printed. To minimize losses, she advises that you reduce your production levels. The second manager states that if your firm sells some more units, the price will cover your increase in costs. In order to reduce losses, the second manager recommends that you should increase production. Explain which manager is correct and who is offering the correct advice?