Scribd
Upload
22 views

Assessment 1

This document contains 16 questions for Problem Set 1 that is due on August 20th, 2023 for an MBA Executive (Managerial Economics) course taught by Dr. Rashmi Ahuja. The questions cover topics related to demand and supply, consumer and producer surplus, price controls, price elasticities, and deriving demand curves.

Uploaded by

nishant.a23x
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
22 views

Assessment 1

This document contains 16 questions for Problem Set 1 that is due on August 20th, 2023 for an MBA Executive (Managerial Economics) course taught by Dr. Rashmi Ahuja. The questions cover topics related to demand and supply, consumer and producer surplus, price controls, price elasticities, and deriving demand curves.

Uploaded by

nishant.a23x
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 5

Problem Set 1

Due date for submission : 20th Aug 2023 (10 pm)


MBA Executive (Managerial Economics)
Instructor : Dr. Rashmi Ahuja
Q1. When demand is estimated to be p = 50 – 0.5x, calculate the loss in
consumer surplus when a tax drives price from $1 to $5.
Q2. Consider the market for corn flour below. What is the social surplus
?

Q3 . Consider the demand and supply diagram below.

If a price floor of $20 is introduced, then which area will represent the
deadweight loss? Calculate its value.
Q4. In the city of happyland, the market for bicycles is described by the
following demand and supply equations: P = 25 – 2Q and P = 1 + Q.

What is the value of producer surplus and consumer surplus if the


market operates in equilibrium?

Q5. The demand for good X is given by

Research shows that the prices of related goods are given by Py


=$5,900 and and Pz =$90, while the average income of individuals
consuming this product is M = $55,000.
a. Indicate whether goods Y and Z are substitutes or complements for
good X.
b. Is X an inferior or a normal good?
c. How many units of good X will be purchased when Px = $4,910?
d. Determine the demand function and inverse demand function for
good X. Graph the demand curve for good X.
Q6. You are the manager of a mid sized company that assembles
personal computers. You purchase most components—such as random
access memory (RAM)—in a competitive market. Based on your
marketing research, consumers earning over $75,000 purchase 1.3
times more RAM than consumers with lower incomes. One morning,
you pick up a copy of The Wall Street Journal and read an article
indicating that a new technological breakthrough will permit
manufacturers to produce RAM at a lower unit cost. Based on this
information, what can you expect to happen to the price you pay for
random access memory? Would your answer change if, in addition to
this technological breakthrough, the article indicated that consumer
incomes are expected to grow over the next two years as the economy
pulls out of recession? Explain.
Q7. Consider a market where supply and demand are given by Qxs = -
16+Px and Qd=92-2Px suppose the government imposes a price floor of
$40, and agrees to purchase any and all units consumers do not buy at
the floor price of $40 per unit. Determine the cost to the government of
buying firm's unsold units. Compute the lost social welfare (deadweight
loss) that stems from the $40 price floor.
Q8. Suppose that the market for milk can be represented by the
following equations:
Demand: P = 12 – 0.5QD
Supply: P = 0.1QS where P is the price per gallon, and Q represents
quantity of milk, represented in millions of gallons of milk consumed
per day.
a) Calculate the equilibrium price and quantity of milk.
b) To help dairy farmers, the government sets a minimum price of $2.50
per gallon of milk. What is the new quantity of milk sold in the
marketplace?
c) Illustrate your answers to (a) and (b) on a graph. Using this graph,
calculate how the consumer surplus and producer surplus change after
the price supports are enacted. Also calculate any deadweight loss that
results.
d) Suppose that the government supports the $2.50 per gallon price by
purchasing any excess milk suppliers make available but are unable to
sell to consumers. How much milk must the government buy?
Q9. The demand for beer in US is given by the following equation: Qd =
700 − 2P − PN + 0.1 I,
where P is the price of beer, PN is the price of nuts, and I is average
consumer income.
a. What happens to the demand for beer when the price of nuts goes
up? Are beer and nuts demand substitutes or demand complements?
b. What happens to the demand for beer when average consumer
income falls ?
c. Graph the demand curve for beer when PN = 200 and I = 9, 000.
Q10. Using demand supply framework, Graphically show what will be
the deadweight loss in case of a) price ceiling and b) price floor being
imposed by the Government.
Q11. A white-water rafting company wishes to raise their rates from $75
to $80 per person. He is afraid that in doing this, the number of
customers will decrease from 100 to 90 per week.
a) What is the elasticity of demand?
b) Should the company raise the price?

Q12. Consider the situation facing a national newspaper with a price


elasticity of -0.2 and an advertising elasticity of 3.5. What will a 10
percent decrease in price or 4 percent increase in advertising budget
mean for the firms demand ?Which of the two you recommend firm
should implement ?

Q13. Suppose the cross-price elasticity of demand between goods X and


Y is 5. How much would the price of good Y have to change in order to
increase the consumption of good X by 50 percent?

Q14. If Starbucks’s marketing department estimates the income


elasticity of demand for its coffee to be 1.75, how will looming fears of a
recession (expected to decrease consumers’ incomes by 4 percent over
the next year) impact the quantity of coffee Starbucks expects to sell?

Q15. Consider a linear demand curve, Q = 350 − 7P.


a. Derive the inverse demand curve corresponding to this demand
curve.
b. What is the choke price?
c. What is the price elasticity of demand at P = 50?

Q16. The market demand for good A is given by the equation,


Q = 100, 000 − 50, 000P + 4M,
where Q is the market demand, P is the price of good x, and M is per
capita income.
If the (own-price) elasticity of demand is −1 and the income elasticity of
demand is 1, solve for the values of Q, P, and M.

***************************

You might also like