ELEMENTS OF ECONOMICS (MICRO) DISL - APRIL 2014

Section A

Answer ALL questions in this section

(1) In a society, Tanya is the sole producer, who allocates her time between writing
books and lecturing students. Each month she spends writing books yields 3
books, and each month she devotes to lecturing students yields 4 classes. If
Tanya spends an entire year working, graph her production possibilities curve.

(10 marks)

(2) Tanya now decides that her health is more important than her wealth; as such
she decides to spend less time working and as such produces only 2 books per
month and conducts 3 classes per month. If she works for only half the year,
graphically illustrate what her new production possibility frontier is likely to be.

(10 marks)

(3) Joni Lu can pick 10 pounds of grapes in a day or plant 2 rows of corn. Nashua
can plant 6 rows of corn and gather 15 pounds of grape. Each works on ORB
Farm for the entire month of September.

(a) What is the maximum number of pounds of grapes the two can pick in the
month?

(5 marks)

(b) What is the maximum number of rows of corn the two can plant in
20 days?
(5 marks)

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 Section B

Answer ALL questions

(4) Graphically illustrate and briefly explain the likely response of the demand curves
in the following situations:

(a) The effect of an advertising campaign stating that the consumption of

magnum tonic wine increases virility.

(3 marks)

(b) The effect of hurricane season on the demand curve for raincoats.

(2 marks)

(c) The effect on the demand curve for Samsung Galaxy cell phones as the
price of Iphones decreased.

(3 marks)

(d) The demand curve for car radios as the price of automobiles increase.

(2 marks)

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(5) The two diagrams below show supply and demand curves for compact disc (CDs)
and compact disc players.
D S
S

Compact Discs Compact Disc Players

(a) On the right hand diagram show and briefly explain what happens when rising
raw material prices make it costlier to produce compact disc players.

(5 marks)

(b) On the left hand diagram, show and briefly explain what happens to the market
for CDs.

(5 marks)

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(6) The following table summarizes information about the market for Physics
textbooks:

Quantity Demanded per Quantity Supplied per

Price ($) Year Year
4500 4300 250
5500 2300 500
6500 2050 850
7500 1600 1000
8500 1200 1200
9500 850 1550
10500 500 2000

(a) What is the equilibrium price and quantity (demanded and supplied) for
textbooks?
(2 marks)

(b) To quell outrage over tuition increases, the college places a $7500 limit on
the price of textbooks, how many text books will be sold now?

(3 marks)

(c) While the price limit is still in effect, automated publishing increases the
efficiency of textbook production. Show graphically the likely effect of this
innovation on the market price and quantity.

(5 marks)

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 Section C

Answer ALL questions

(7) A rise in the price of commodity A from $2000 to $2150 increases quantity
demanded from 25,000 to 30,500 units in commodity B. Calculate the cross price
elasticity of demand. Are the two goods complements or substitutes?

(10 marks)

(8) An 8 percent increase in the price of cement causes a 6 percent reduction in the
quantity demanded of steel. What is the cross price elasticity of demand for steel
with respect to the price of cement? Are the two goods complements or
substitutes?
(10 marks)

(9) When the price of a season pass to the grandstand for Boys and Girls
Championships increases by 10 percent the quantity of tickets demanded by
patrons falls from 9000 to approximately 8200. What is the price elasticity of
demand for Boys and Girls Championships tickets and is demand elastic with
respect to price?

(10 marks)

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