ECON A231 Introduction to Microeconomics Assignment 1

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ECON A231 Introduction to Microeconomics

Assignment 1

Due date:  27 February 2023

This assignment accounts for 25% of your course grade. Answer all of the following questions. Total marks: 100

You are advised to read through all the materials in Units 1 and 2 before attempting these questions. Precise and concise answers are preferred to lengthy ones.

Question 1 (7 marks)

Suppose your friend asked you to go watching a film while you were studying for a test yesterday. What would be the opportunity cost of watching the film? Explain your answer.

Question 2 (8 marks)

Discuss what is necessary to make rational decisions. Be sure to mention opportunity cost, marginal cost, and marginal benefit.

Question 3 (9 marks)

A (very, very small) country produces milk and shirts, and its production possibilities frontier is as follows:

Production point

Milk (gallons)

Shirts (numbers)

A

B

C

D

E

0            and

100

2         and

90

4        and

70

6              and

40

8                 and

0

a    The nation is currently producing at point B. What is the opportunity cost of two additional gallons of milk? (2 marks)

b    Suppose the nation is initially producing 4 gallons of milk and 40 shirts. What is the opportunity cost of two additional gallons of milk? Explain your answer. (4 marks)

c    Under what condition would the nation be able to produce 6 gallons

of milk and 70 shirts?

Question 4 (10 marks)

Before Christmas, the price of Christmas trees went up by 30%, while the quantity of Christmas trees sold increased by 80%. Do these figures          imply an upward sloping demand curve for Christmas trees? Explain with a diagram.

Question 5 (12 marks)

Suppose hamburgers and hotdogs are substitutes in both consumption and production. If the price of hamburgers increases, what will be the impact on the equilibrium price and quantity of hotdogs? Discuss two possible outcomes with diagrams.

Question 6 (10 marks)

Due to the increase in the demand for video games, the equilibrium price of video games increases by 10%, and the equilibrium quantity increases by 5%.

a    Is the price elasticity of demand for video games elastic, inelastic, or indeterminate? Explain your answer (with calculation if possible). (5 marks)

b    Is the price elasticity of supply of video games elastic, inelastic, or indeterminate? Explain your answer (with calculation if possible). (5 marks)

Question 7 (8 marks)

If the price elasticity of demand for film tickets is 1.2, should cinemas raise or lower the ticket price if they would like to maximise total revenue? Explain with a diagram.

Question 8 (4 marks)

Marcus buys a tablet for $5,000. What determines the size of consumer surplus Marcus receives? Explain.

Question 9 (9 marks)

The following figure shows the market for key lime pies.

a    What is the minimum price that sellers are willing to accept for the 40th pie? (2 marks)

b    Calculate the total surplus at the market equilibrium. Show your steps clearly. (3 marks)

c    If the quantity transacted increases from 60 to 80 slices, explain whether there will be an increase or a decrease in total surplus. (4 marks)

Question 10 (8 marks)

The following table shows the domestic supply and domestic demand

schedules for cherries in Australia.

Price

(dollars per box)

Quantity demanded (boxes per week)

Quantity supplied (boxes per week)

25

800

0

50

600

200

75

400

400

100

200

600

125

0

800

a     Calculate the producer surplus at the market equilibrium. Show your steps clearly. (3 marks)

Suppose the Australian government imposes a price floor of $100 per box on cherries.

b    What would be the quantity transacted of cherries in Australia? (2 marks)

c    Calculate the deadweight loss. Show your steps clearly. (3 marks)

Question 11 (15 marks)

Suppose the Hong Kong government imposes a per unit tax of $100 on     smartphone sellers. Use a diagram of a smartphone market to indicate and explain the changes in the price paid by buyers, price received by sellers, quantity transacted, tax revenue, tax incidence, consumer surplus,             producer surplus, total surplus, and deadweight loss. Provide clear labels  in your diagram.


2023-03-15