Final Assignment Economic

INSTRUCTION: Answer ONLY FOUR (4) Questions in A-4 size paper.
1. a) Use a downward-sloping demand curve to explain a change in quantity demanded. (5 marks)

b) Use a diagram to show how each of the following events affects the equilibrium quantity and price of cakes:

i. the cost of ingredients of cakes falls. (4 marks) ii. households tend to prefer buns to cakes. (4 marks) iii. cakes is assumed a normal good and a fall in consumer income. (4 marks) iv. consumers expect the price of cakes to rise next week. (4 marks) v. the number of confectioneries rises sharply. (4 marks)

2. a) Suppose Shanghai Metropolitan of Arts and Cultures is the sole operator of Shanghai World Expo 2010. The Expo is expected to be running short of funds, so the operator decides to raise revenue.

i. Use a diagram to show and explain how a rise in price of admission would raise total revenue received. (6 marks)

ii. Use a diagram to illustrate and explain how a fall in price of admission would raise total revenue received. (6 marks)

b) Consider a government policy aimed at consuming sugary drinks. Studies estimated that the price elasticity of demand for sugary drinks is 0.8. Assuming the price of a pint of sugary drinks is RMB6 and the government intends to reduce the amount of sugary drinks consumed by 40%. How much should the government increase the price of sugary drinks? (Use the midpoint method for your calculations). (5 marks)

c) Assuming the production of tea in Suzhou increased dramatically in 2000 after the bumper harvest. The following table shows what happened to prices and quantity of tea demanded:

Year 1999 2000 Quantity Demanded (in kg) 10.56 million 18.63 million