principles of microeconomics 16

Question 1:

Evaluate the following statement to see if it makes sense or not. You must Support your answer with graphs.

“If more Canadians lean more towards consuming more vegetables as advocated by Health Practioners, the demand for fast food will fall. The decrease in the demand for fast food will cause the price of fast food to fall. The lower price of fast food, however, will then increase the demand for fast food. In the new equilibrium, Canadians might end up buying more fast food than they did initially, contrary to the health Practioners’ advice.

Question 2:

For each of the following statements name the kind of elasticity, calculate the elasticity, and indicate if the kind of elasticity is elastic, inelastic, perfectly elastic, zero elastic, unit elastic, or infinite elastic.

  • When the price of theatre tickets is reduced from $14.00 to $11.00, tickets sales increase from 1,200 to 1,305.
  • After a major failure of Brazil’s coffee crop sent coffee prices up from $3 per kilogram to $4.8 per kilogram, sales of tea in Canada increased from 7,500 kg per month to 8,000 kg per month.
  • An increase in the world demand for pulp (used in producing newsprint) increases the price by 14 per cent. Annual Canadian production increases from 8 million tonnes to 11 million tonnes.

b.As average household income in Canada increases by 10%, annual sales of Toyota Camrys increase from 56000 to 67000.

Question 3:

Market research has revealed the following information about the market for chocolate bars: The demand can be represented by the equation

QD = 300 – 1.5 P. The supply can be represented by the equation

QS = 0 + 0.5 P.

  • Calculate the equilibrium price and quantity in the market for chocolate bars, then show your results on a well labled graph.
  • Now suppose that the demand changed to QD= 300 – 2 P. Solve for the new equilibrium price and quantity, then show your results on your original graph.
  • At the initial equilibrium you calculated in “a”, show an excess demand and make a short comment on it.

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