Reference no: EM131305544
Questions/Exercises
Seminar 1
1. Discuss what you understand by the following:
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a) the law of demand
b) the conditions of demand
c) a demand curve
d) a normal good
e) an inferior good
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f) a Giffen good
G) the law of supply
h) the conditions of supply
i) a market
j) equilibrium
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2. What might be the main determinants of the market demand of the following products?
a. lager beer c. sports cars
b. holidays abroad d. spaghetti
3. What is the key difference between a change in price and a change in any other factor affecting demand on the demand curve?
4. Explain the differences between a market economy and a centrally planned economy. Which of the two is better?
Seminar 2
1. The following is a simple supply and demand schedule:
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Price (£)
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Quantity Demanded
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Quantity Supplied
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4
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200
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50
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8
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160
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70
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12
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120
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90
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16
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80
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110
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20
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40
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130
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24
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0
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150
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a) Plot the demand and supply curves on excel or a graph and identify the equilibrium price and quantity.
b) Explain why the equilibrium price is a stable one;
2. Assuming that the potato is an inferior good, analyze the effect of a rise in national income on the equilibrium price and quantity of potatoes. Now analyze the effect on the potato market of a plague of carbohydrate-loving potato locusts.
3. Use the supply and demand model to discuss the economic effects of:
a) setting minimum wages for low paid workers,
b) setting maximum rents for private accommodation, and
c) levying an indirect tax on the sale of a product.
d) giving a production subsidy
Seminar 3
1. a) What determines price elasticity of demand? Discuss the factors that are likely to determine the price elasticity of demand for the following goods:
a) salt c) petrol
b) bread d) Rolls Royce cars
b) using the data in Sem 2 Q1, calculate the arc price elasticities of demand and supply when (a) price increases from £12 to £16; and (b) when pricy increases from £4 to £8; and (c) when price increases from £20 to £ 24
2. Discuss the meaning and importance of a) income elasticity of demand, and b)cross elasticity of demand
What factors are likely to determine the size of each?
3. Examine the effect of taxing smoking on the equilibrium price and quantity of cigarettes? Why is the price elasticity of demand a useful concept in this case? Is it true that governments tax smoking solely in order to improve our health?
4. Explain the relationship between price elasticity of demand and total revenue. Why might this relationship be of importance?
Seminar 4
1. What is meant by the following terms?
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a. utility
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d. a rational consumer
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b. marginal utility
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e. budget constraints
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c. the law of diminishing marginal utility
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2. What is the distinction between cardinal utility and ordinal utility? Which approach, if any, do you find the more realistic?
3. Explain carefully what is meant by consumer surplus. What happens to consumers surplus when price increases?
4. Carefully explain the meaning, derivation and properties of indifference curves and budget lines.Use indifference analysis to show how a rational consumer maximizes his/her utility from a given income.
5. Draw a diagram with quantities of good Y on the vertical axis and quantities of good X on the horizontal axis. Explain how an increase in price of affects the consumer's equilibrium.
6. Now draw a similar diagram to that for question 5, but now show the effect of an increase in income on the consumer's choice?.
7. Use indifference analysis to illustrate the difference between the income and substitution effects of an increase in the price of a good.
Seminar 5
1. The table below shows how the output of a good X changes as more people are hired:
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Number of workers
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Total Product
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Average Productivity of Labour
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Marginal Productivity of Labour
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1
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200
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2
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600
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3
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960
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4
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1120
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5
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1200
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6
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1200
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a) Fill in the gaps;
b) Plot the TP, AP & MP on a graph, showing where there is diminishing marginal returns to labour and diminishing average returns to labour.
2. The table below shows how a firms' costs of production vary as output changes. Fixed costs amount to 8
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Quantity Produced
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Total Cost
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Average Total Cost
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Average Variable Cost
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Average Fixed Cost
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Marginal Cost
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1
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10
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2
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16
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3
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18
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4
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28
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5
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45
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6
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66
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Fill in the gaps in the table. Plot all of the data onto a graph. List the things that you notice about the relationship between the four cost curves?
3. What do we mean by Scale Economies? Why is a firms' long-run average cost curve sometimes taken to be U-shaped?
Seminar 6
1. Define perfect competition. How realistic do you consider the assumptions behind the perfect competition model to be?
2. . Demonstrate, with the use of appropriate diagrams, the profit maximizing equilibrium of a perfectly competitive firm.
3. Perfectly competitive firms can never make supernormal profits. Is this true?
Seminar 7
1. What do you understand by `monopoly'? Show how a monopolist sets a profit maximizing output, and explain why this equilibrium may be a stable one in more than the short run.
2. Explain, giving examples, the circumstances under which price discrimination is likely to occur.
3. `Monopoly is always against the public interest and should be curbed by the state.' Do you agree?
4. Discuss the principal features of the `kinked demand curve' model of oligopoly.
5. Outline the profit maximizing equilibrium of a firm operating under monopolistic competition
a) in the short run, and
b) in the lomg run