# micro-economics

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micro-economics
QUESTION 1

a. A downward-sloping demand curve shows in both graphs when the quantity at each price is doubled what it was. However, the curve in demand for pharmaceutical drugs is drawn with a relatively steep slope as inelastic products. Equilibrium price down-sloping along the demand curve while quantity in both market increased to some extent.
b. In inelastic demand of pharmaceutical drugs, the percentage change in price is greater than the percentage change in quantity demanded. While in elastic demand, the percentage in price is less than the percentage change in quantity demanded. When the quantity at each price is doubled in both markets, a 50% reduction in price would cause a smaller increase in quantity in inelastic demand of pharmaceutical drugs than in elastic demand of computers.
c. In the pharmaceutical drugs market, the quantity demanded is not very responsive to price due to its inelastic character. However, the change in price directly influence the quantity demanded in computer market because of its elasticity. So total consumer spending on pharmaceutical drugs would not change much while the total spending on computers would increase concerning a cheaper price.

QUESTION 2

a. Opportunity cost defines as the highest-valued alternative that must be given up so as to choose another one.
b. The \$50000 per year must be given up as an accountant which constitutes my opportunity cost if I choose to run a hardware store in this case.
No, I would not open the store. Comparing total earnings per year in the following two conditions:
(i) Open the store: \$510000-\$500000-\$50000=-\$40000
(ii) Not open the store: \$50000 accountant earnings
Thus, it constitutes an actual loss each year if opening the store.
c. Fixed costs are costs that remain unchanged as the quantity of output changes. For example, the cost of acquisition of the building, payment for store equipment and Internet advertising.
d. Variable costs are like labor costs, electricity cost and raw

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