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2. What will happen to the equilibrium price and quantity of butter in each of the following cases? You should state whether demand or supply or both have shifted and in which direction using the appropriate diagrams:
a) A rise in the price of margarine
b) A rise in the price of bread
c) A rise in the demand for bread
d) An expected increase in the price of butter in the near future
e) A tax on butter production
Suppose we observe that the equilibrium price of a particular good has decreased significantly over the past 5 years, with virtually no change in the equilibrium quantity. Which of the following is the most likely explanation? Over the past 5 years:
A. both supply and demand have decreased.
B. supply has increased but demand has decreased
C. both supply and demand have increased
D. demand has increased but supply has decreased.
Using the multiplier process, explain the effect of a rise in investment on output and price in
an economy.
Why do we decompose the price effect into income and substitution effects?
2) Explain the lexicographic ordering of preferences
3) What problem could arise with consumers’ net demand functions as any price becomes zero? What axiom of consumer theory is involved here? How might it be changed to exclude this possibility?
4) Why will a firm never plan to supply an output at which it has increasing returns to scale?
7. Elgar Toaster Co. is contemplating a modernization of its antiquated plant. It now sells its
toasters for $20 each; the variable cost per unit is $8, and fixed costs are $840,000 per year.
a. Calculate the break-even quantity.
b. If the proposed modernization is carried out, the new plant would have fixed costs of
$1,200,000 per year, but its variable costs would decrease to $5 per unit.
1. What will be the break-even point now?
2. If the company wanted to break even at the same quantity as with the old plant,
what price would it have to charge for a toaster?
5. What is the effect on break-even quantity of
a. A decrease in unit price?
b. A decrease in average variable cost?
c. A decrease in fixed cost?
Assume some numbers and illustrate the effect by drawing graphs showing
the break-even point.Break-Even Analysis (Volume-Cost-Profit)
Think of a good or service you might like to provide to your community. Then, describe how you would supply the good or service. How would you go about estimating demand for your good or service? Evaluate whether there would be enough demand for there to be a “market” for your good or service.
Question 9
Using the demand and supply curves, explain the effect of the following on the equilibrium, price and quantity
- Taxation
- A fall in the cost of production
Question 10
- There are 2 branches of economics that make up economic discussions. With relevant examples, show the difference between these two branches.
- In your own perspective, how do you think the 3 economic principles are related? (6 Points)
Given the following demand function and cost function of a perfectly competitive firm P=20 and TC=240-50Q +5Q^2
1. Find equilibrium price and output.
2. Find total profit of the firm and show that profit is maximum possible.
What are the two main types of asset price bubbles? Discuss some of the policy responses
to possible bubbles.
