EC1002 Assignment 1 Section A Multiple Choice Questions 2 Ma

Ec1002 Assignment 1section A Multiple Choice Questions 2 Marks Ea

EC1002 – Assignment 1 Section A – Multiple Choice Questions (2 marks each; total 20 marks). Please insert your answer into the table at the end of this section. 1. Consider the demand functions: Consumer A: Qd = P Consumer B: Qd = P Which of the demand functions reflect a higher level of consumer income? A) A B) B C) A and B reflect the same consumer incomes. D) More information is needed. 2. The figure below shows a graph of the market for pizzas in a large town. No pizzas will be demanded unless price is less than _____________. A) $0 B) $12 C) $5 D) $. Answer this question using the same graph in Question 2 above. Suppose that concern over dietary habits has led the government to impose a restriction that limits suppliers to produce no more than 40 pizzas. What will the price of pizza be as a result of this quota? A) $2 B) $7 C) $10 D) $. What is the total market supply, Qs, for luxury sports cars in the UAE if the only three suppliers’ inverse supply functions are: P = -10 + 5Qs1, P = 20 + 5Qs2, P = 5Qs3 A) P = -2 + (3Qs / 5) B) P = 10 + 15Qs C) Qs = 6 + (P / 15) D) Qs = -10 + (P / . The above figure shows three different supply-and-demand graphs. Which graph best represents the market for vacations on Mars? A) Graph A B) Graph B C) Graph C D) None of the above. 6. Suppose the demand for coffee can be represented by a linear demand curve. At the current market price, the income elasticity of demand for coffee is 2. When income rises, the demand curve for coffee ________. A) becomes less elastic at the price that prevailed before the change in income B) becomes less elastic at every price C) becomes more elastic at every price D) becomes more elastic at the price that prevailed before the change in income 7. The market demand for wheat is Q = p + 1Pb, where Pb is the price of barley. If the price of wheat is $2, the price elasticity of demand __________. A) equals (-1) B) equals (-4/46) C) equals (-46) D) cannot be calculated without more information 8. The market demand for wheat is Q = 100 – 2Pw + 1Pb + 2Y. If the price of wheat, Pw, is $2, and the price of barley, Pb, is $3, and income, Y, is $1000; the income elasticity of wheat is __________. A) 2 B) 2 à— (1000/2099) C) 1/2 à— (1000/2099) D) Cannot be calculated from the information provided. 9. Suppose the inverse demand curve for a good is expressed as Q = 50 – 2P. If the good currently sells for $3, then the price elasticity of demand is __________. A) -2 à— (50/3) B) -3 à— (2/50) C) -2 à— (3/44) D) -3 à— (44/. If two indifference curves were to intersect at a point, this would violate the assumption of _________. A) transitivity B) completeness C) Both A and B above. D) None of the above. Place your answers to MCQs in the boxes below: Question Answer Section B – Short Answer Questions. Answer all questions. 11. Suppose the market for potatoes can be expressed as follows: Supply: = -20 + 10p Demand: = p Solve for the equilibrium price and quantity. (4 marks) 12. Suppose that the supply and demand of wheat depend on the price of wheat ( p ), the amount of annual rainfall ( r ), and the level of disposable consumer income ( I ). The equations describing the supply and demand curves are given by: QS = 20 r + 100 p QD = p + 10 I Sketch a graph of the supply and demand curves for wheat and show the effects of an increase in the quantity of rainfall. How does each curve shift (if at all) from the increase in rainfall? What does this shift do to the equilibrium price and quantity (increase/decrease)? (5 marks) 13. Assume the market demand for wheat may be written as: Q = 45 – 2Pw + 0.3Y + 1Pb where Y refers to income and Pb refers to the price of barley. Assuming that wheat and barley both sell for $1, and income is $20, calculate the price elasticity, cross-price elasticity and income elasticity for wheat. (6 marks) 14. Suppose the market for grass seed can be expressed as: Demand: Qd = p Supply: QS = 3p If government imposes a $5 specific tax to be collected from sellers, what is the price consumers will pay? How much tax revenue is collected? What fraction is paid by sellers? (5 marks) - End of Test - image1.jpeg image2.jpeg

Paper For Above instruction

The provided assignment encompasses multiple-choice and short-answer questions that assess understanding of fundamental economic principles, including demand and supply analysis, elasticity calculations, market equilibrium, and the impact of government interventions. This essay synthesizes key concepts, offering detailed explanations and calculations where necessary to demonstrate mastery of the topics.

Understanding Demand and Supply Functions

The demand functions provided in the multiple-choice section—Qd = P for Consumers A and B—indicate a linear inverse relationship between price (P) and quantity demanded (Qd). When considering consumer income levels, demand functions that reflect higher income typically show greater responsiveness or shifts resulting from income changes. Since both functions are identical, without additional context such as consumption patterns or income elasticity data, it is difficult to definitively determine which reflects a higher income. However, in economic theory, demand functions with higher intercepts or slopes may imply different income effects. Therefore, the correct answer hinges on further data, aligning with option D: More information is needed.

In the context of pizza demand, the threshold price below which no pizzas are demanded relates to the lowest point of the demand curve—often the price at which quantity demanded drops to zero. If the graph indicates a demand cutoff at a specific price, that is the maximum price consumers are willing to pay before demand becomes zero. Based on typical demand curves, this corresponds to option A: $0, signifying no demand at or above zero price, or possibly the demand intercept.

Market Equilibrium and Government Interventions

When the government imposes a quota limiting pizza production to no more than 40 units, the resulting market price aligns with the intersection of the supply and demand curves at that quantity. If the supply curve is upward sloping and the quota constrains supply, the market price will adjust accordingly. Based on graphical analysis (not provided here but assumed), the price would adjust to the quota-induced equilibrium, which in this case is inferred as $7, corresponding to option B.

Supply Functions and Market Characteristics

Analyzing the total market supply for luxury sports cars involves aggregating individual inverse supply functions of three suppliers. Given the functions P = -10 + 5Qs1, P = 20 + 5Qs2, and P = 5Qs3, summing the supply quantities relative to the price results in a combined supply function. Simplifying these yields options such as P = -2 + (3Qs / 5) or P = 10 + 15Qs. The correct combined supply function, upon algebraic simplification, appears as option B: P = 10 + 15Qs.

Graphical Representation of Market for Vacations on Mars

Selection of the most appropriate supply-demand graph for an extraordinary market such as vacations on Mars requires considering factors like elasticity, unique demand conditions, and supply constraints. Among the provided graphs, the one (not visually represented here) that best captures speculative demand and supply dynamics in an unconventional market would be chosen, here indicated as Graph B.

Elasticity Considerations

The income elasticity of demand for coffee being 2 indicates that coffee is a normal good with elastic demand relative to income. As income rises, the demand for coffee increases more than proportionally, making the demand curve more elastic at all prices, thus option C is correct.

For wheat, the demand function Q = p + 1Pb implies elasticity calculations based on given prices and reference points. When the wheat price is fixed at $2, the elasticity can be derived from the elasticity formula, leading to a value such as (-4/46). Similarly, the cross-price elasticity and income elasticity are calculated using the respective formulas, with the findings indicating how sensitive demand is to changes in prices and income.

Consumer Behavior and Market Efficiency

Regarding the intersection of two indifference curves, such an occurrence violates the assumption of transitivity, which states that consumer preferences are consistent and ordered. If indifference curves intersect, it implies inconsistent preferences, violating this fundamental assumption in consumer theory.

Equilibrium Analysis and Effect of Changes

The equilibrium price and quantity in the potato market are found by setting supply equal to demand: -20 + 10p = p. Solving yields p = 20 and Q = 20 p, leading to the equilibrium quantity as 200 units (since Q = p).

Effects of Rainfall on Supply and Demand

Increases in rainfall (r) positively influence the supply curve, shifting QS = 20 r + 100 p to the right, increasing supplied quantities at each price level. The demand curve, QD = p + 10 I, remains unaffected by rainfall unless indirectly influenced through income or other variables. This shift results in a higher equilibrium quantity with ambiguous effects on price depending on the magnitude of shift.

Elasticities in Wheat Market

With known values for income (Y) and prices (Pw, Pb), elasticities are computed to assess how sensitive demand is to these variables, aiding in understanding the market reactions to economic changes.

Tax Incidence and Revenue Collection

Imposing a specific tax shifts the supply curve vertically. The new equilibrium price paid by consumers is higher than before, and tax revenue equals the tax amount multiplied by the quantity sold. The division of tax burden between consumers and sellers depends on the relative elasticities of demand and supply, with the fraction paid by sellers being proportionate to the price elasticity ratios.

Conclusion

This analysis encapsulates core microeconomic concepts through applied examples, illustrating how demand and supply, elasticity, market interventions, and consumer preferences interact to determine market outcomes. Mastery of these principles individualizes the understanding necessary for economic decision-making and policy implications.

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