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An increase in supply tends to increase the equilibrium price and quantity?
Beginning with the Fall 2018 semester, three North Carolina universities (UNC Pembroke, Western Carolina University, and Elizabeth City State University) reduced their tuition. After the Fall semester had begun, each of these universities announced that they had experienced a large increase in enrollment.
a. Explain what these facts tell us about the price elasticity of demand for education at these universities.
b. Use your answer to part a. of this question to explain whether reducing tuition would lead to an increase, a decrease, or no change in the amount of revenue received by the universities.
Problem two: Aluminium pricing
For this question, refer to the article from The Economist magazine titled “A coup in
Guinea adds fuel to aluminium’s red-hot rally”.
a) The article identifies a number of factors behind the recent increase in the price of
aluminium.Mentionthesefactorsandindicatewhethertheyaredemand-sideorsupply-
side factors.
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b) With the aid of a well-labeled diagram, illustrate the effects of the factors identified
in part (a) above on the equilibrium price and quantity of aluminium. Pay attention to
the statement in the article that “Supply constraints, however, have been more
important”whendrawingyourdiagram
The weekly demand for sandwiches at a local sandwich shop is given by:
Qd = 2,000 – 5P + 2Pj – 0.01INCOME,
where Qd is the number of sandwiches demanded per week, P is the per-sandwich price, Pj is the price of a related product, and INCOME is the average monthly income of consumers.
Suppose that P = $10, Pj = $50, and INCOME = $5,000. What is the value of the cross-price elasticity of demand? Is the related product a substitute good or a complement?
Suppose that P = $10, Pj = $50, and INCOME = $5,000. What is the value of the income elasticity of demand? Are sandwiches a normal or an inferior good?
Suppose you are a perfectly competitive firm producing computer memory chips. Your production capacity is 1000 units per year. Your marginal cost is $10 per chip up to capacity. You have a fixed cost of $10,000 if production is positive and $0 if you shut down. What are your profit-maximizing levels of production and profit if the market price is (a) $5 per chip, (b) $15 per chip, and (c) $25 per chip? For case (b), explain why production is positive even though profits are negative.
If the water bill rises, but the government decides to support families to acvieve the same living standars as before the rise of the water price, what would be the total effect of the price rise into substitution and income effect?
With the help of well-labeled diagrams, compare the long run equilibrium of a firm under a
perfectly competitive market structure and a monopoly market structure. [20 marks]
1. You are considering two cable networks for your television. Tata Sky charges Rs 120 per month regardless of the channels watched. Hathway on the other hand charges Rs 1/channel per month. Your monthly channel demand is given by the equation CD = 150-50P, where P is the price per channel.
A. How many channels per month will you watch with each network?
Based on consumer surplus obtained, which provider should you choose.
Subsidies are inefficient since they lead to a deadweight loss. Do you agree? Use diagram to illustrate your answer
1. Rahul purchases only 2 goods: ice cream and chocolates. If own price elasticity of demand for chocolates is 1, what is the cross price elasticity of demand for ice-cream. Show your calculation/reasoning.
