BEO2264 MICROECONOMIC ANALYSIS
(a) Discuss how microeconomic theory can help to explain the effects of lowering the minimum wage for teenage employees in the retail industry (b) How is the usefulness of a theory evaluated
(c) “Observation without theory and theory without observation are equally useless in explaining the complexities of the real world”. Discuss.
(a) Distinguish between positive analysis and normative analysis. (b) The following statements were overheard in a conversation between two students.
Student A: “Making unemployed people work for social security benefits is a poor social policy because it is exploitative”.
Student B: “Making unemployed people work for social security benefits interferes with the workings of the labour market; then both the unemployed and employed will be made worse off”.
Which of the above statements is ‘positive’ and which ‘normative’? Explain your answers.
(a) Define nominal prices and real prices. Explain why real prices instead of nominal prices are used in microeconomic analysis. (b) Explain how demand and supply analysis help to explain the price changes for petrol and university education since the 1980s.
(a) What is the difference between the IBM Corporation and the computer industry? (b) What is the difference between the market for computers and computer industry? (c) Is the world market for personal computers competitive? Explain your answer.
TOPIC 2: DEMAND AND SUPPLY ANALYSIS
_____________________________________________________________________ Question 1
Suppose that unusually hot weather conditions increase the demand for ice cream. Explain why the price of ice cream will rise to a new market clearing level.
Use supply and demand curves to illustrate how each of the following events will affect the price of butter and the quantity bought and sold in the market.
(a) An increase in average income levels.
(b) An increase in the price of margarine.
(c) An increase in the price of bread.
(d) An increase in the price of milk.
Suppose that the demand and supply curves for apple juice are: Q=100 – P and Q = 0.25P, where P is the price and Q is the quantity in hundreds of thousands of bottles per week.
(a) Calculate the equilibrium price and quantity.
(b) Illustrate the equilibrium using a diagram.
(c) Calculate the elasticity of demand and the elasticity of supply at the equilibrium price. (d) Calculate the consumer surplus and the producer surplus.
The market demand function for is given by the following equation:
QC = 500 - 200PC + 0.25Y + 100PW
The current values are: PC= $5, Y = $10 000, and PW= $2.50.
(a) Find the quantity demanded.
(b) Calculate the price elasticity of demand. Comment on the price elasticity coefficient. (c) Calculate the income elasticity of demand. Comment on the nature of the commodity. (d) Calculate the cross-price elasticity of demand. If the price of wool socks (PW) increased by 10 per cent, by what percentage, and in what direction, does the quantity demanded of cotton socks (QC) change.
TOPIC 3: CONSUMER CHOICE
(a) What is the difference between ordinal utility and cardinal utility? (b) Explain why the assumption of cardinal utility is not needed in order to rank consumer preferences. (c) State the basic assumptions regarding consumer preferences. Briefly clarify the meaning of each of those assumptions.
The following combinations of units of goods X and Y represent various market baskets: A contains 4 of X and 6 of Y; B contains 16 of X and 7 of Y; C contains 15 of X and 3 of Y; D contains 3 of X and 2 of Y.
Explain which market basket(s) is (are) clearly preferred to other(s). Is there any uncertainty over which if preferable in the case of some market baskets? Which baskets are...
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