Explain how the value of the cross price elasticity of demand (XED) for a particular good is determined by its relationship to other goods.
Examine the significance of both cross price elasticity of demand and income elasticity of demand for a firm.
Explain why the price elasticity of demand for primary commodities is often relatively low while the price elasticity of demand for manufactured goods is often relatively high.
Discuss the importance of price elasticity of demand and cross price elasticity of demand for a firm’s decision making.
Using the concept of the Keynesian multiplier, explain the possible impact of a rise in government spending on economic growth.
To what extent might unemployment represent an economic and social problem?
Note that widgets and pidgets are imaginary products.
In the country of Burbia, the demand and supply of widgets are given by the functions
Qd = 249 − 4P
Qs = 150 + 14P
where Qd is the quantity demanded per month, Qs is the quantity supplied per month and P is the price per widget in dollars ($).
The final of the 2018 Football World Cup is expected to be held in the Luzhniki stadium, Moscow.
The capacity of the stadium is 80 000. The expected cost of holding the final is US$12 million, which is not dependent on the number of people attending the match. All tickets will be sold for the same price.
Calculate the equilibrium price and quantity per month.
Calculate the excess demand/excess supply (state which of these) at a price of $8.50.
Calculate the price at which excess demand of 18 widgets would result.
A demand curve is drawn under the assumption of ceteris paribus.
Using an example, outline why the assumption of ceteris paribus is necessary when analysing the effect of a change in price on the quantity demanded of a product.
Widgets and Pidgets have negative cross price elasticity of demand (XED).
Explain how the demand function for Widgets, Qd = 249 − 4P, is likely to change as a result of an increase in the price of Pidgets.
The demand for widgets is considered to be unit elastic at the current price.
Outline the meaning of the term unit elastic demand.
Explain two determinants of the price elasticity of demand (PED).
Two products are in competitive supply. Using an example, outline how the supply for one of them is likely to be affected by an increase in the price of the other.
State the value of the price elasticity of supply (PES) for tickets to the 2018 Football World Cup final.
On the diagram draw and label the supply curve for tickets at the 2018 Football World Cup final.
Draw and label the marginal revenue (MR) curve for the 2018 Football World Cup final.
Using the diagram and your answers to parts (j) and (k), explain how the organizers could achieve their goal of profit maximisation.
Figure 1 illustrates the production possibilities for rice and pencils in Country H. Resources in Country H are fully employed.
Figure 1
Figure 2 illustrates Islandia’s demand (D) for and supply (S) of rice.
Figure 2
The government of Islandia wants to reduce the price of rice by 40 % in order to enable low-income households to buy enough rice to meet their needs. The government decides to achieve this by imposing a maximum price.
The government of Islandia realises that when a maximum price is set below the equilibrium price, a method of non-price rationing is necessary. Critics of the maximum price policy argue that it might result in the creation of a parallel market.
Assuming that 25 000 pencils are produced initially, identify the opportunity cost for Country H if the production of rice is to be increased by 100 %.
State one reason why the production possibility curve (frontier) for Country H might shift outwards.
Table 1 provides information about Good X and Good Y, which are related goods.
Table 1
Using Table 1, calculate the cross price elasticity of demand between Good X and Good Y when the price of Good X increases.
The demand for Good Z is income inelastic.
Define the term income inelastic demand.
Country D is an economically less developed country that specializes in the production of primary products.
Explain two implications for Country D of a relatively low income elasticity of demand for its primary products.
Good A and Good B are in joint supply.
Using a diagram to support your answer, explain the impact on the market for Good B of an increase in the price of Good
Calculate the shortage resulting from the imposition of the maximum price.
Calculate the change in producer surplus resulting from the imposition of the maximum price.
Calculate the change in consumer expenditure on rice resulting from the imposition of the maximum price.
State two methods of non-price rationing.
With reference to Figure 2, outline why the imposition of a maximum price might lead to the creation of a parallel market.
Explain one reason, apart from the possible creation of a parallel market, why the imposition of a maximum price for rice in Islandia might not enable low-income households to buy enough rice to meet their needs.
Microeconomics
Explain two reasons why the demand for manufactured goods might be price elastic.
Evaluate the importance of cross price elasticity of demand for a business selling a good if the price of a related good increases.