Microeconomics Answers

Why and how do monopolistically competitive firms fail to achieve allocative efficiency?
Illustrate and explain using a diagram.

How a single seller within the market can maintain an inefficient allocation of resources diagram for single seller

Tom is a full-time lecturer at a private higher education institution and is considering a career in carpentry. He wishes to pursue a career in carpentry (a childhood dream) which he has studied part-time and is now equipped to take on clients. In his current position he earns a rate of R1000 per day and if he were to pursue a career in carpentry he would earn R800 per day. Due to the flexibility of the employment conditions at the higher education institution he works for, Tom can negotiate the number of days he works at and will receive a rate of remuneration based on the number of days worked.
Question 1
1.1 Construct a production possibility frontier to illustrate Tom’s earnings potential between the two careers if initially he was not working as a carpenter, then he worked one week per month, then two, then three and finally four weeks per month (assuming only four weeks in a month). (5 marks)

A country imports 3 billion barrels of crude oil per year and domestically produces another
3 billion barrels of crude oil per year. The world price of crude oil is $90 per barrel. Assuming linear schedules, economist estimate the price elasticity of domestic supply (Es)
=0.25 and the price elasticity of domestic demand (Ed) to be 0.1 at the current equilibrium. Suppose now there is an imposition of a $30 per barrel import fee on crude oil that would
involve annual administrative costs of $250million. Assume that the world price will not change as a result of the country imposing the import fee, but that the domestic price will
increase by $30 per barrel.
i) Determine the quantity consumed, quantity produced domestically and quantity imported
after the imposition of the import fee.

1.5 In the labour market for carpenters, the current market clearing wage rate is R800 per day. With the aid of a diagram, discuss the welfare effects of government intervention in the form of legislation that sets the minimum wage rate for a carpenter at R1000 per day. (20 marks)

Assume that you decide to spend a quarter of your income on clothes. What is (a) your income elasticity of demand; (b) your price elasticity of demand?

Illustrate and explain using diagrams , the difference between long run supply in a constant cost individual firm and industry and increasing cost firm and industry

Consider workers at a local café that opens 7 days a week, the café allows its workers to choose how many days per week they work and which days of the week they work. On Saturdays it must pay workers a 25% loading and pay a 35% loading on Sundays (the current penalty rates for such workers in Australia).
Assume that workers do not care which days of the week they work other than the fact the get paid more on Saturdays and Sundays. Such that the first day they work (if they choose to do so) is always Sunday and if they choose to work a second day it is always Saturday, if they which to work a third to seventh day a week it is week-day (Monday to Friday). In addition, assume workers have no other income or employment opportunities.

a. Draw the budget constraint of café workers for consumption. You do not need to label the consumption intercept.

Expansionary demand management policy measures tend to

According to the AD-AS model, a shift of AS curve from AS to AS1 is the result of