Microeconomics Answers

Q5: (a) Suppose that in Year 1 a firm produces 5 cars valued at $10,000 each. It has contributed $50,000
to GDP. In Year 2 its contribution is $60,000. Has the firm produced more cars? Why eliminating price
changes allows us to see more clearly whether or not there have been output changes.

Q5: (B) Assume a car dealer in Pakistan imported 20 cars directly from Japan at a cost of Rs.500,000 per
car in 2005. By close of year 2005, 15 cars were sold at Rs.600,000 per car. The remaining 5 cars were
sold in 2006 for Rs.550,000 each. How are the GNP and its major components affected in 2005 and in
2006 through this transaction?
Expert's answer

You graduate from college and are offered three jobs (Job A, Job B, and Job C). Assume that they are identical in all respects (duties, benefits, promotion prospects, and so on) except that the salaries differ, as shown below: Job A $150,000 Job B $120,000 Job C $100,000 First, which of the three jobs would you choose? (No, you can’t have all three!) Because you have made a choice, you have incurred an opportunity cost. What is the opportunity cost of your job choice? Comparing benefits and costs, have you made a rational choice?



Exper

Assume a car dealer in Pakistan imported 20 cars directly from Japan at a cost of Rs.500,000 per car in 2005. By close of year 2005, 15 cars were sold at Rs.600,000 per car. The remaining 5 cars were sold in 2006 for Rs.550,000 each. How are the GNP and its major components affected in 2005 and in 2006 through this transaction?

1. A good can be produced in a competitive industry at a cost of $10 per unit. There are 100 consumers are each willing to pay $12 each to consume a single unit of the good (additional units have no value to them.) What is the equilibrium price and quantity sold? The government imposes a tax of $1 on the good. What is the deadweight loss of this tax?
2. Suppose that the demand curve is given by D(p) = 10 − p. What is the gross benefit from consuming 6 units of the good?
3. In the above example, if the price changes from 4 to 6, what is the change in consumer’s surplus?
4. Suppose that a consumer is consuming 10 units of a discrete good and the price increases from $5 per unit to $6. However, after the price change the consumer continues to consume 10 units of the discrete good. What is the loss in the consumer’s surplus from this price change?

1. If the market demand curve is D(p) = 100 − .5p, what is the inverse demand curve?
2. An addict’s demand function for a drug may be very inelastic, but the market demand function might be quite elastic. How can this be?
3. If D(p) = 12 − 2p, what price will maximize revenue?
4. Suppose that the demand curve for a good is given by D(p) = 100/p.
What price will maximize revenue?
5. True or false? In a two good model if one good is an inferior good the other good must be a luxury good.

find a newspaper article that deal with a change in supply or demand for a product . illustrate the changes descibed in the article with a supply or demand graph

Discuss the items you would include to figure out the opportunity cost of a vacation to Northern Pakistan?

The number of taxicabs in Motorville and the taxicab fares are regulated. The fare currently charged is Rs.500 a ride. Motorville taxicab drivers want to obtain government's permission to raise the fare to increase their revenues and ask you to be their economic adviser. After studying the market, you come up with the following demand schedule for taxicab rides:

Price (Rupees per ride) Quantity demanded (rides per month)
300 160
400 120
500 80
600 40
700 0