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AEB 212 Assign 2

This document provides the instructions for Assignment 1 in the course AEB 212: Introduction to Agricultural Economics. The assignment includes 4 questions covering topics of price elasticity of demand, cross-price elasticity of demand, income elasticity of demand, and cost concepts. Students are to work in groups of 5 and calculate various elasticities based on scenarios provided. They also must complete a cost table and explain the behavior of average fixed costs as output increases.

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Thabo Chuchu
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42 views

AEB 212 Assign 2

This document provides the instructions for Assignment 1 in the course AEB 212: Introduction to Agricultural Economics. The assignment includes 4 questions covering topics of price elasticity of demand, cross-price elasticity of demand, income elasticity of demand, and cost concepts. Students are to work in groups of 5 and calculate various elasticities based on scenarios provided. They also must complete a cost table and explain the behavior of average fixed costs as output increases.

Uploaded by

Thabo Chuchu
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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AEB 212: INTRODUCTION TO AGRICULTURAL ECONOMICS

ASSIGNMENT 1 DUE: 25/11/18

INSTRUCTIONS

In Groups of five (5) attempt the following questions.

Q 1. Rati’s demand for apples is Qd = 90 – 4P.


ai) At price P = 10, what is the price elasticity of demand? …. …………………………. (4)
Quantity demanded for apples

ii) Give the type or category of elasticity in (a) above …………………………… …… (2)

bi) Calculate the price elasticity as the price moves from P0 = 10 to P1 = 15 by using the mid-
point (arc) price elasticity of demand formula …………………………………………… (4)

ii) Interpret the elasticity in (bi) above……………………………………………………. (2)

Q 2. The price of ice cream decreases by 10%. As a result, Letty’s demand for cheesecakes
decreases from 11 cheesecakes to 9 cheesecakes.
a) Calculate the cross-price elasticity of demand for Letty, for these two goods.................. (4)

b) From Letty’s perspective, is ice cream a substitute or a complement good for cheesecakes
and why? …………………………………………………………………………………… (3)

Q 3. Thato got an income increment at work, and her income increases by 25%. As a result,
her demand for fat cakes decreases by 15%.
a) Calculate Thato’s income elasticity of demand for fat cakes? ......................................... (3)

b) What does this income elasticity tell us about Thato’s valuation of fatcakes and give a
reason for your answer? …………………………………………………………………… (3)
Q4. a) With relevant examples clearly differentiate between implicit and explicit costs… (4)
b) Complete the table below. (10)
Total Total Total Total Average Average Average Marginal
Produc Fixed variable cost Fixed variable Total cost
t Cost cost cost cost cost
0 300 0 300 - - - -

1 300 90 390 300 90

2 300 170 470

3 300 240 540

a) Explain the behaviour of average fixed costs as output increases. …………………… (2)

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