Economics Answers

Using well illustrated numerical examples from a Zambian set up, kindly discuss two (2) theories that

you have learnt in class, that support the reasons why various countries engage in external trade.

Suppose the market is in equilibrium – which of the following will always result in an increase in the equilibrium price?

Select one:

a.

a decrease in both the supply and demand

b.

a decrease in demand and an increase in supply

c.

a decrease in supply and an increase in demand

d.

an increase in both the supply and demand

Why do we call mechanisms such as proportional income taxes and the welfare system auto-matic stabilizers ? Choose one of these mechanisms and explain carefully how and why it affects fluctuations in output

What is the rationale behind the rationing system for allocation of scarce resources?

You are an analyst employed by a yacht manufacturer that last year sold 30,000 luxury yachts at $500,000 each. Your market research indicates that:

i) the price elasticity of demand for your aircrafts in −0.5. (or +0.5 in absolute value); 

ii) the income elasticity of demand for your aircrafts is +2.6; and 

iii) the cross price elasticity for your aircrafts with respect to the price of a comparable jet manufactured by a competitor is +1.4. 

Answer the following questions based on the information above:

A. Suppose that you expect a ceteris paribus decrease in average incomes of 15% this year compared to last year. How many aircrafts do you estimate that your company will sell this year? How will it impact total revenues? (6 MARKS)

B. Assume now that you do not think incomes will change, but that you expect your competitor will decrease his price by 3%. Assuming that your company does not change the price of its aircrafts, how many would you expect your company will sell this year? (5 MARKS)

Several years ago flooding along with the Missouri and the mississip rivers destroyed thousands of acres of wheat

a) what information would you need about the market for wheat to assess whether farmers as a group were hurt or helped by the floods?

The population in country C decreases, due to a lower birth rate. At the same time, there is an increase in the cost of fertilizer, which is used to grow vegetables. Explain how the market for vegetables will be affected by these changes. Clearly indicate how the equilibrium price and equilibrium quantity will be affected by these changes. Make use of a combination of diagrams and verbal explanation to explain your answer. Note that your diagrams should be properly annotated and that marks will be deducted for any missing labels on your diagram.

If milk is a normal good, then a decrease in consumers’ income will definitely cause 

Given the following information

C= 100+0.6 Yd

I = 500

G = 800

T = 200

X = 200

M = 50 + 0.3 Y

Find :

1. Equilibrium level of GDP in the economy

2. Marginal propensity to save in the economy

3. What happens to the equilibrium output when autonomous investment increases by 100 rupees? What is the value of the investment multiplier?

You would like to buy a house, but you can only afford monthly payments of R500. Thirty-year loans are available at 6% interest compounded monthly. If you can make a R5 000 down payment, what is the price of the most expensive house that you can afford to purchase?