.1em;”> Business and Management
School of Business Administration
.png”>
Module Name: INTRODUCTION TO MICROECONOMICS
(ECO1001)
Instructions:
Answer
all questions and show all workings
All
graphs must be properly displayed
with descriptive title, appropriate scales, as well labels for the axis,
curves and equilibrium where necessary
Calculate
all elasticity using the midpoint formula
.png”>
The Consumer Affairs Commission (CAC) undertakes various surveys in its
bid to promote and protect the interests of Jamaican consumers. Regular Grocery
survey is conducted by collecting information from supermarkets and shops island-wide.
The
most recent surveyfound the prices of various
items have increased significantly over the past year.
Of the 12 supermarkets surveyed in the Corporate Area, Shopper’s Fair
supermarket in Duhaney Park was found to have the lowest prices. Despite this the prices of eggs and margarine
(227g) of have seen significant increases at this location. Table 1 shows the prices and other market
information for these products.
Date
price of“EGGSâ€
quantity of “EGGS†demanded
price of “MAGARINEâ€
quantity of “MAGARINE†supplied
Feb, 2012
$200 per doz
1100 doz
$190each
800 units
March, 2013
$235 per doz
750 doz
$220each
1200 units
Table 1
Mrs. Johnson, a
regular customer at Shoppers Fair, welcomed the survey and stressed that she
only shop at Shopper’s Fair supermarket in Duhaney Park because it is the “poor
man’s supermarketâ€. In the meantime, president of the Jamaica Manufacturers’
Association (JMA) is urging consumers not to blame local business producers for
the increase in prices. He stated that many businesses are trying to contain
prices and be more efficient but the cost of electricity and raw materials
sometimes leave them with no choice but to pass on the burden to the consumer.
Several
supermarket retailers are now threatening to close down, saying they cannot
compete in an environment where prices are heading. They also complained that the survey method
used by the CAC is flawed because the CAC does not take into consideration the
prices at which they bought their produce. In spite of this, the Minister of
industry, investment and commerce, said that the publication of grocery prices will
continue as it is intended to put pressure on retailers in an effort to have
the best prices within the marketplace.
Answer 1-7 based on the scenario above
1.
Calculate
the price
elasticity of demand for EGGS and interpret your result?
(3
marks)
a) Explain the determinants of elasticity of demand for EGGS?
(3 marks)
b) If Shopper’s Fair want to increase their revenue from
selling eggs would you recommend they offer a discount on this product? Justify
your answer
(2 marks)
2.
Calculate thecross-price elasticityand state the relationship between EGGS
and MAGARINE?
(3 marks)
a) Draw a demand and supply graph that explains what will
happen in the egg market when the price of MAGARINEincreases.
(4 marks)
b) Identify two
other products that are likely to have a positive cross-price elasticity of
demand with EGGS. Explain your choice.
(2 marks)
3.
Calculate the income
elasticity of demand for “EGGSâ€if the average income spent
on this product increases from $2000 to $2200 and interpret the result.
(3 marks)
a) Based on the relationship between eggs and margarine
above, use a demand and supply diagram to illustrate the effect on EGGS
market when income increases.
(4 marks)
4.
Calculate the price
elasticity of supply for “MAGARINEâ€when the price changes
and interpret your result.
(3 marks)
a) Is there any set of relationships between price
elasticity of supply and total revenue? Explain your answer.
(2 marks)
5.
Suppose that the
government thinks that EGG farmers’
incomes are too low so it sets a minimum price eggs above the market price.
Demonstrate this situation with a graph and explain what happens to the prices
and quantities of eggs as a result of the price floor?
(5 marks)
6.
How will the
following events affect equilibrium price and quantity of EGGS in a
competitive market? In each case, sketch a graph to help explain your answer.
a) A decrease in the
cost of electricity and raw materials to produce eggs
(4 marks)
b) Several producers and distributors of eggs plan to close down their business because they are
finding it impossible to compete in an
environment where prices are rising sharply
(4 marks)
7.
Suppose that the
demand for MARGARINE is given by Q =
1,000 – 5P and the supply is given by Q = 4P – 80
a) show that the equilibrium Quantity is 400.
(2 marks)
b) what is consumer surplus and producer
surplus at this equilibrium?
(6 marks)
TOTAL (50 MARKS)
"Looking for a Similar Assignment? Get Expert Help at an Amazing Discount!"