ASSIGNMENT

Assignment 1

Assignment 1

Microeconomics

Question 1

a)

According to the graph, if the country is producing 300 kg of food per month, it will not be able to produce any sunscreen. In order to produce 50 litres of sunscreen, it will have to give up 100 kg of food production.

b) If the country produces 150kg of food, it will have to produce 75 kg litres sunscreen in order to achieve efficiency.

c) If the country wants to produce one additional kg of food, it will have to give up 0.5 litres of sunscreen.

d) If the country wants to produce one additional litre of sunscreen, it will have to give up 2kg of sunscreen.

e) The relationship between c and d is that for every 1kg of additional food being produced, the country will have to give up 0.5 litres of sunscreen.

f) The opportunity cost for food remains constant for all levels of production. This is proved from the straight line that had been drawn in relationship between the two variables.

Question 2

a)

As the price of orange juice decreases, the quantity demamded increases.

If the wage rate is increased, the quantity of work done by the workers remains constant because of the limitations of humans.

b) Characteristics of monopoly firm:

They do not innovate their product.

The prices remain high.

Employees are paid low wages.

Customer service is not up to proper standards.

c) Characteristics of monopolistic competition:

Relatively large number of sellers.

Differentiated products.

Low prices.

Small market share of each competitor.

Question 3

dQ/Q ÷ dP/P

(3-2)/2 ÷ (1.2 - 1.4)/1.4

0.5 ÷ -0.1428

-3.5

Percentage change in demand / Percentage change in price

(0.9 + 0.85)/ (2+3) x (3-2)/ (0.85-0.9)

1.75 + 5 x -0.05

1.75%

Since a decrease in prices lead to an increase in quantity demanded, the products are complementary products.

dQ/Q ÷ dP/P

(2-3)/3 ÷ (1.2 - 1.2)/1.2

-0.33 ÷ 0

0

The good is a complementary product because its demand is changing without a change n price. This means that the demand is dependant on some other variable.

Question 4

Price

Quantity

Total

Revenue

Marginal

Revenue

Total

Fixed

Cost

Total

Variable

Cost

Total

Cost

Marginal

Cost

Average

Total

Cost

Profit

9

0

0

300

0

300

33.33

-300

400

100

8

50

400

300

100

400

50

0

300

100

7

100

700

300

200

500

71.42

200

200

100

6

150

900

300

300

600

100

300

100

100

5

200

1000

300

400

700

140

300

0

100

4

250

1000

300

500

800

200

200

100

100

3

300

900

300

600

900

300

0

200

100

2

350

700

300

700

1000

500

-300

300

100

1

400

400

300

800

1100

1100

-700

Profit maximization points are Price= 6 and 5, and quantity = 150 and 200

Question 5

Equilibrium rent = $450 / month

Equilibrium quantity = 20 thousand units

At a rent of $600 the quantity of houses rented = 10 thousand units

At a rent of $300 the quantity of houses rented = 30 thousand units

Shortage of houses = 20 thousand units

Maximum price someone is willing to pay = $600/ month

Macroeconomics

Question 1

a) GDP = C + I + G + (Ex - Im)

Where,

C = consumption expenses per household

I = Private Investment (gross)

G = Government spending

Ex = Export

Im = Import

b) Objectives of monetary policy:

Equal distribution of income

Control of money

Maintaining full employment

Equilibrium of balance of payments

Exchange rate stability

Stability of prices

Rapid economic growth

Whenever an economy has stopped growing or is witnessing a negative growth, the best solution is to reduce the interest rate. This is exactly what the Central Bank did in order to increase growth.

The decrease in the interest rate will lead to an increase in borrowings from banks. These borrowings will be spent in the economy that will increase consumption. This will increase the production and hence, the idle capacity will be utilised thus stimulating ...