Cross-price elasticities of demand

Reference no: EM13161529

Question 1: (a) Suppose the income elasticity of demand for furniture is +3 and the income elasticity for doctors' services is +0.3. Compare the impact on furniture and doctors services of a recession that reduced consumer incomes by 10 per cent.

(b) How might you determine whether compact discs and restaurant meals are in competition with each other?

(c) Interpret the following Income Elasticities of Demand (YED) values for the following and state if the good is normal or inferior;

(d) Interpret the following Cross-Price Elasticities of Demand (XED) and state if the goods are substitutes or compliments.

XED= + 0.6 XED= -2.2

Question 2: Explain and illustrate with diagrams the differences between diminishing marginal returns and decreasing economies of scale and cite causes and examples.

Question 3: (a) Explain and Illustrate using diagrams the difference between price and non-price influences in affected the behaviour of a demand curve;

(a) Explain and Illustrate using diagrams the difference between price and non-price influences in affected the behaviour of a supply curve;

(b) Explain and illustrate with diagrams how and why a marginal cost curve maps out a supply curve.

Question 4: (a) Illustrate using diagrams and explain how the oligopolistic firms determines their collective profit maximising price and output levels when they collude and act like a cartel (monopoly);

(b) Illustrate and explain with diagrams how a cheating oligopolist would chose its profit maximising output level if attempting to increase its market share at the agreed original price;

(c) Illustrate and explain with diagrams how a cheating oligopolist would chose its profit maximising price and output levels if it attempted to undercut the price charged by the other oligopolistic firms.

Question 5: What will happen to the equilibrium price and quantity of butter in each of the following cases? You should state whether demand or supply (or both) have shifted and in which direction. (In each case, assume ceteris paribus). (a) A rise in the price of magarine;

(b) A rise in the demand for yoghurt;

(d) A rise in the demand for bread;

(e) An expected rise in the price of butter in the near future;

(f) A tax on butter production;

(g) The invention of new, but expensive, process for removing all cholesterol from butter, plus the passing of a law which states that all butter producers must use this process.

Question 6: (a) Discuss the following statement: 'In the real world there is no industry which conforms precisely to the economist's model of perfect competition. This means that the model is of little practical value'.

(b) Illustrate with a diagram and explain the short-run perfectively competitive equilibrium for both (i) the individual firm and (ii) the industry;

(b) Are there any avantages in having a market structure that does not conform to perfect competion? If so then list five of these and discuss them

Question 7: (a) Why is mutual interdependence important under oligopoly, but not so important under perfect competition, monopoly or monopolistic competition?

Reference no: EM13161529

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