Economics Answers

The fundemental problem in economics is...

. If you like to buy a new equipment for $13000 and you receive a cash inflow of $ 2500 per year for 10 years. What is the internal rate of return?

The following table showed the cross price elasticities between price of product X with the quantity demanded for product Y, Z, R, and S, respectively.

       Types of Product            cross price elasticities     Y2.5Z0.1R-0.5S0.0

The conclusion is _________________________.

Select one:

a.

product Y and X is complement product.

b.

R and X is complement product. 

c.

Product X and R is substitution product.

d.

Y and S is substitution product.

Neville's passion is fine wine. When the prices of all other goods are fixed at current levels, Neville's demand function for high-quality claret is Q = .02M – 2P, where M is his income, P is the price of claret (in British pounds), and Q is the number of bottles of claret that he demands. Neville's income is 7500 pounds, and the price of a bottle of suitable claret is 30 pounds.

(a) How many bottles of claret will Neville buy?

(b) If the price of claret rose to 40 pounds, how much income would Neville

have to have in order to be exactly able to afford the amount of claret and the amount of other goods that he bought before the price change?

(c) At the income level you mentioned in part (b) and the higher price of claret of 40 pounds, how many bottles would Neville buy?

(d) At the original income of 7500 pounds and a price of 40, how much claret would Neville demand?

(e) Decompose the total price effect into the substitution and income effect

6. A) Derived the equation of the aggregate supply curve from the wage setting and the price setting relations. 

B) Explain clearly how this curve is affected by a decline in each of the

following:

i)Oil price,

ii) Unemployment benefits, and

iii)Expected price level.

A firm currently employs 30 workers at a daily wage rate of $40. It calculates that the marginal cost per day of hiring an additional worker would be $102.

By how much would the daily wage rate have to be increased to attract an extra worker?

3. Given an economy with fixed prices, discuss the impacts of the following factors on the effectiveness of fiscal policy and monetary policy: i) degree of sensitivity of money demand to income (k), and

ii) degree of the sensitivity of interest to rate of interest (b).

The schedule shows the short run marginal costs of producing good X.

Units of X 1 2 3 4 5

Marginal cost ($) 40 30 30 60 120

Given that the total fixed cost is $20, calculate the level of output which minimises Average Total Cost (ATC).

MC = 10-2Q+2Q2

P = 8

Find the output and profit.

Kali lives on mangoes and avocados, Pm = $5, Pa = $10, and her income is $200.

A. Identify her budget constraint equation and illustrate Kali’s budget line on a graph

with mangoes on the horizontal axis and avocados on the vertical axis. (6 marks)

B. Identify and illustrate on a new graph Kali’s new budget constraint if her income

doubled, the price of mangoes doubled, and the price of avocados remained constant.

(7 marks)

C. Explain the impact on her real income when the price changed in the scenario in B

assuming income had remained constant.