Define price elasticity of demand

Reference no: EM131128779

Economics-

1. The figure below shows the demand and supply for laptop computers.

Price in $	Demand per month in 00's	Supply per month in 00's
600	500	350
700	400	400
800	300	450
900	200	500

(a) (i) What is the equilibrium price of laptop computers?

(ii) At price $800 there is

A. Excess demand

B. Excess supply

C. Equilibrium

D. No demand

(iii) Define price elasticity of demand.

(iv) When price rises from $800 to $900 the price elasticity of demand is

A. Elastic

B. Inelastic

C. Perfectly elastic

D. Normal

(v) With the aid of the data in table, explain the answer you gave in (a)(iv).

(vi) Kim Chui is a student. He has saved enough money to buy either a laptop computer or a second-hand motor bike. What is the opportunity cost if Kim decides to buy the laptop computer?

(b) Figure 1b shows the demand and supply of laptop computers in Jamaica. In 2009 the government of Jamaica announced that it was placing a 16.5% tax on laptop computers.

(i) On Figure 1b show the effect of this tax on laptop computers on price, quantity demanded and quantity supplied.

(ii) Identify and briefly explain one other factor besides a sales tax that might change the price of laptop computers.

(i) What is meant by a minimum wage rate?

(ii) An increase in the minimum wage rate will benefit only a small number of people in a country. Do you agree with this statement? Give reasons for your answer.

(d) (i) With the aid of an example, explain what is meant by the term division of labour.

(ii) Do the advantages of division of labour always outweigh the disadvantages for a firm? Explain your answer.

2. Julia is a hairdresser. She used to work in a hairdressing salon but now she visits her clients in their own homes.

(a) (i) Julia is an entrepreneur. Define the term entrepreneur.

(ii) Below is a list of some of Julia's costs. Place each cost in the correct column

Example: Loan repayments

1. Petrol

2. Car insurance

3. Shampoo

Julia has calculated that her fixed costs are $450 each month

In July her variable costs were $150

(iii) Calculate Julia's total costs for July. Show your workings.

The following table shows Julia's revenue and variable costs for August.

	August
Revenue	$ 1200
Variable costs	$ 160

(iv) Calculate Julia's profit for August. Show your workings

(b) Julia received help from the government to start her business.

(i) Identify and briefly explain two methods a government can use to help individuals to start their own businesses.

(ii) How important are government schemes to encourage the setting up of small firms in an economy?

(ii) Briefly explain one reason why privatised firms may need to be regulated.

(iii) Discuss whether the costs of privatisation outweigh the benefits to the economy.

3. Figure 3a shows the rate of inflation in Vietnam from 2007 to 2009.

(a) (i) Define rate of inflation.

(ii) With reference to the data in Figure 3a, describe what happened to prices in Vietnam between 2008 and 2009.

Complete the sentences below from the following list.

a decrease cost-push

demand-pull a deficit

a surplus an increase

(iii) Inflation in Vietnam may have been caused by _______ in world oil prices.

(iv) The cause identified in (iii) is called _______ inflation.

(v) Identify one function of money.

(vi) Briefly explain one effect of inflation on the function of money you have identified in (a)(v).

Figure 3b shows the balance of payments on current account for Vietnam from 2007 to 2009

(b) (i) Using the data in Figure 3b, describe what happened to the balance of payments on current account from 2007 to 2008.

The balance of payments on a country's current account shows the trade in visible and invisible imports and exports.

(ii) Give an example of a visible import.

(iii) Give an example of an invisible import.

(iv) Inflation always worsens the balance of payments on current account. Do you agree with this statement? Explain your answer.

(c) (i) In 2008 the government of Vietnam increased the rate of interest from 6.5% to 10.25%. An increase in interest rates is an instrument of

A. Fiscal policy

B. Monetary policy

C. Supply side policy

D. Regional policy

(ii) Briefly explain two reasons why an increase in the rate of interest might lead to an increase in the level of unemployment.

(iii) To what extent are supply side policies likely to be successful in reducing unemployment?

4 (a) (i) The increasing interdependence and integration of the world's economies is known as

A. Globalisation

B. the emerging economies

C. the World Trade Organisation

D. the developed countries

On 1 January 2010 China joined with the six founding members of the Association of South East Asian Nations (Asean) to form a new free trade area. The members plan to eliminate tariffs on 90% of imports from member countries.

(ii) Identify two advantages of a free trade area to member countries.

(iii) Briefly explain two reasons why free trade may be considered a disadvantage to developing countries.

In 2009 the Ford Motor Company announced plans to spend $490 million on building a third car assembly plant in China.

(iv) The plan by Ford to build a car assembly plant in China is an example of

A. Foreign Direct Investment

B. Foreign Aid

C. International Grant

D. Export

(v) Briefly explain two likely reasons why the Ford Motor Company plans to build a third car assembly plant in China.

(vi) Will the setting up of a multinational in a developing country always lead to an improvement in the standard of living for the people of that country? Give reasons for your answer.

In December 2009 the United States of America (USA) International Trade Commission accused China of unfair subsidies. It stated that Chinese producers were dumping steel pipes, used for oil and gas drilling, on the American market.

(b) Explain what is meant by the terms

(i) subsidies

(ii) dumping

The USA International Trade Commission has announced tariffs ranging between 10% and 15% on Chinese steel pipes.

(iii) Do the benefits of tariffs outweigh the disadvantages for a developed economy, such as the USA? Explain your answer.

(iv) Identify and explain one method, other than tariffs, that a government could use to reduce the demand for imports.

Reference no: EM131128779

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