Microeconomics Answers

You have been appointed as the marketing manager of start-up Brewery Company in South Africa. You know that the demand for the new beer in any given week is the followingQ_D: =550,000 – 50,000P.
The current price of the new beer is R4.00 per unit. You have been instructed by the managing Director to maximise the sales revenue of the company.
4.1 complete the following table (use the point formula i.e Q/P x(P/Q) to calculate the price elasticity) (15 marks)
Price Quantity demanded Price elasticity Total revenue

R1.00
R2.00
R3.00
R4.00
R4.50
R5.50
R6.00
R7.00
R8.00
R9.00
R10.00

4.2 explain whether you will increase or decrease the price of beer to increase the company’s sales revenue, establish the revenue-maximising price. Use the table above to explain your answer. (5 marks)

How would each of the following affect Helena’s labour supply decision? Be
specific on what happens to her individual labour supply curve.
a) The value of Helena’s home triples in an unexpected hot real estate market.
b) Originally an unskilled worker, Helena acquires skills that give her access to a
higher-paying job.
c) A temporary income tax surcharge raises the percentage of her income that she
must pay in taxes

Dollar sales were down 3% for the 52 weeks ending March 26 with $1.4 billion. Pounds were down 5% with 1 billion pounds sold. Price per pound was up 3% to $1.36. Assuming a change in only one of supply or demand, what is happening in the market?

Suppose a price-discriminating hotel faces two types of consumers: high and low. Suppose 50% of consumers are of each type.
Each consumer wants at most one hotel room. A room can come in three qualities: Royal, Aristocratic, and Working
Class. The consumers' dollar valuations for each kind of room are given below:
Type # Quality Royal Aristocratic Working
High $2000 $1000 $500
Low $500 $400 $300
Suppose the hotel wishes to maximize total revenues (i.e., marginal production costs are zero). In addition, suppose
the hotel cannot distinguish one type of consumer from the other, and therefore consumers must self-select into
the option intended for each one. (Note: the hotel is not forced to sell a room to every consumer). Which room and price is offered to each type of consumer?

1. A wage subsidy has been proposed as the best way to increase the income of the working poor. The subsidy would involve government topping up the hourly wage rate of the individual who has been designated “working poor”. Discuss the possible income and substitution effects associated with a wage subsidy.

1) One of the most striking changes in the personal distribution of income has been the widening gap in the earnings between skilled and unskilled workers. Discuss some of the factors that could explain the growing inequality between these two groups.
2) How would each of the following affect Helena’s labour supply decision? Be specific on what happens to her individual labour supply curve.
a) The value of Helena’s home triples in an unexpected hot real estate market.
b) Originally an unskilled worker, Helena acquires skills that give her access to a higher-paying job.
c) A temporary income tax surcharge raises the percentage of her income that she must pay in taxes.

1. Assume that the unemployment rates for three consecutive years are 7.5%, 8.6%, and 9.5%. Suppose that the employment/ population ratios for the same three years are 56.7%, 57.5%, and 58.3%. Judging by the two measures of labour utilization, is the economy gaining or losing strength?
2. What type of unemployment are the following workers experiencing? Explain.
a) Workers in a fish plant in Newfoundland and Labrador lose their jobs when the cod fishery closes down.
b) Ski lift attendants in British Columbia are laid off due to the lack of snow.
c) A salesclerk in a video store loses her job when a new video store opens around the corner.
d) Bank tellers lose their jobs as bank installed automated teller machines.
e) Lack of consumer confidence and growing pessimism among Canadian business leaders lead to wide-scale layoffs in the natural resources and manufacturing industries.

discuss whether prices are less important in allocating scarce resources in a mixed economy compared with a market economy

The income elasticity is +2.5 and income increases by 20%. Sales were 5000 units, what will they be now?

if qx=25-2.5px+5/3py+0.5I where px=20 py=15 and I=100. what is the cross elasticity of demand