Three Problem-Solving Questions that require written answers
Assignment Questions
Question 1
Part A: The table sets out the demand and supply schedules for banana.
(a) Suppose a cyclone destroyed some banana farms in QLD and the quantity of banana supplied decreased by 100 boxes a week at each price. But at the same time the demand for banana increased by 100 boxes a week at each price. Explain what would happen to the market supply and demand curves? How and why would the market equilibrium price and quantity adjust at the end? What would be the new equilibrium price and quantity? Draw a graph and illustrate the changes on your graph.
|
Price
(dollars per box)
|
Quantity
demanded
|
Quantity
supplied
|
|
|
(boxes a week)
|
|
12
|
100
|
800
|
|
10
|
200
|
700
|
|
8
|
300
|
600
|
|
6
|
400
|
500
|
|
4
|
500
|
400
|
|
2
|
600
|
300
|
A tour agency's demand schedule for hotel rooms is given in the table.
(b) What happens to total expenditure of the tour agency if the price falls from $350 to $250 per night per room? Calculate the demand elasticity of the hotel room. Is the demand for hotel room elastic, inelastic, or unit elastic?
|
Price
(dollars
per night per room)
|
Quantity demanded
(no. of rooms
per night)
|
|
150
|
150
|
|
250
|
130
|
|
350
|
110
|
|
450
550
|
90
70
|
Part B: Answer the following questions.
(c) When Yeon's income was $2,200, he bought 5 kgs of rice a month. Now his income is $3,300 and he buys 4.75 kgs of rice a month.Calculate Yeon's income elasticity of demand forrice. Show your calculation. Is rice income elastic or inelastic? Is rice normal good or inferior good?
Suppose an outbreak of mad cow disease cuts the quantity of beefdemandby 10 per cent.
(d) If the price elasticity of demand for beef is -1.25, by how much would the price of beefhave fallen if the demand for beef increased by 10 per cent? Show your calculation.
(e) Market analysts estimate that the change in the price of beef will decrease the price of pork by 20 per cent and decrease the quantity demanded forbeef by 10 per cent.What is the cross price elasticity of demand for beefwith respect to the price of pork? Does the elasticity indicate that beef and pork are substitutes or complements?
(f) Market analysts estimate that, a 10 per cent increase in the change in the price of pasta sauce will decrease the quantity of spaghetti noodle demanded by 6 per cent.What is the cross elasticity of demand for spaghetti noodle with respect to the price of pasta sauce? Does the elasticity indicate that spaghetti noodle and pasta sauce are substitutes or complements?
Question 2
Part A:
The table shows the demand and supply schedules for US wheat market.The US Farm Bill 2012 indicates that the domestic price of wheat will be set at $300 per tonne, which is above the market equilibrium level of $250 per tonne, in order to support for domestic wheat growers. At the market equilibrium, 1,000 kilo tonnes(Kt) are supplied.
|
Price
(dollar per tonne)
|
Quantity
demanded
(kilotonnes)
|
Quantity
supplied
(kilotonnes)
|
|
100
|
2,000
|
0
|
|
150
|
1,400
|
600
|
|
200
|
1,200
|
800
|
|
250
|
1,000
|
1,000
|
|
300
|
800
|
1,200
|
|
350
|
600
|
1,400
|
|
400
|
0
|
2,000
|
(a) The US Farm Bill 2012 indicates that the domestic price of wheat is set at $300 per tonne, which is above the market equilibrium level of $250 per tonne, in order to support for domestic wheat growers. On a graph, show if it creates a shortage or a surplus in the market for wheat, and explain why and by how much.
(b) On a graph, explain how the price control in the US would change the consumer surplus, producer surplus, and deadweight loss in the domestic wheat market. Assume that the US does not trade wheat internationally. Also, calculate the changes in consumer surplus, producer surplus and deadweight loss. (Remember 1 kilo tonne = 1,000 tonnes)
Question 3
Part A: Answer the following questions.
(a) Terri runs a rose farm. The following table provides information on the number of workers and corresponding output. Complete the table for Terri's marginal product and average product of labour schedules. Briefly explain how you calculate and show your calculation.
|
Labour
(workers
per week
|
Output (roses
per week)
|
Average
product
(roses per week)
|
Marginal product
(roses per week)
|
|
1
|
1,000
|
|
|
|
|
|
|
|
|
2
|
2,000
|
|
|
|
|
|
|
|
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3
|
4,000
|
|
|
|
|
|
|
|
|
4
|
5,000
|
|
|
(b) ProPainters hires students at $250 a week to paint houses. It leases equipment at $500 a week. The table sets out its total product schedule. Calculate and construct ProPainters' cost schedules - that is, total cost (TC), average fixed cost (AFC), average variable cost (AVC), average total cost (ATC) and marginal cost (MC) per house painted. Briefly explain how you calculate each cost schedule and show your calculation.
|
Labour (workers
per week)
|
Output (houses
painted
per week)
|
TC
(dollars)
|
AFC
(dollars
per
house)
|
AVC (dollars per house)
|
ATC
(dollars
per house)
|
MC (dollars per house)
|
|
1
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5
|
14
|
|
|
|
|
|
|
|
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|
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|
|
6
|
15
|
|
|
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