final assingment group a1 (2)

8/17/2019 Final Assingment Group A1 (2)

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BBC403: MICROECONOMICS

FINAL GROUP ASSINGMENT

Group A1

DANIYA ILYASSOVA

SAMAL KUSSANOVA

MAOOTAZ TORKMAN BEB14000

YUNUSMETOV RUSLAN BEA130004

AZRIANNA ALYSSA AZMIL BEE14000!

BBC403: MICROECONOMICS

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FINAL GROUP ASSINGMENT

Question 1

(a) With the help of gure, explain three economics concepts that are

represented in the production possibilities frontier.

(b) The following events occur in the market for ala!sian "irline #!stem ("#).(i) The crash of "# $ight %1& in 'kraine.(ii) The wage rate paid to "# captain and cabin workers decreases.(iii)The price of "ir "sia tickets increase.(iv) eople expect the price of "# economic class tickets to fall next

school holida!s.

With the help of gures, explain the eect of each event on the market e*uilibrium

of "# service.

Answe

(a) With the help of gure, explain three economics concepts that are

represented in the production possibilities frontier.

The roduction ossibilities +rontier (+) shows the various combinations of goods

and services produced within the specied time, given available factors of

production and state of technolog!. t is the boundar! between the combinations of

goods and services that can be produced and the combinations that cannot beproduced.

'sed to explain basic economic concepts- #carcit!, hoices and /pportunit! cost.

Scarcity is dened as wants alwa!s exceeds limited resources to satisf! them. t0s a

problem, which faces not onl! poor people, as well as rich people in order to fulll

their needs.

Choices exist because of scarcit!. We must to make choice between available

alternatives.

Opportunity cost is dened as the best alternative that must be forgone for another

choice.


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+ puts three features of production-

2 "ttainable (inside the +) and unattainable (outside the +)2 34cient (at a points on the +) and ine4cient (at a points inside the +)2 Tradeos (exchange, involves choice) and free lunches (nothing forgone o

increase production)

+actors that in$uence the shift of +-

2 3conomic growth2 mprovements in technolog!2 opulation

(b) (i) The crash of "# $ight %1& in 'kraine decrease the demand of "#

service and demand curve shifts leftward, therefore *uantit! demanded

decreases from 5e to 51, suppl! of airplanes decrease and price

e*uilibrium falls from e to 1. The gure is shown below.

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(ii) The decrease in wage rate paid to "# captain and cabin workers can be

considered as decrease in input or decrease in cost. Therefore, it

increases suppl! and suppl! curve shifts rightward, *uantit! increases

from 5e to 51, price falls from from e to 1. The gure is shown below.

(iii) "ir "sia services are substitute to the services of "#. When the price of

"ir "sia tickets increases, the demand of "# services increases, *uantit!

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of tickets sold increases from 5e to 51 and price per ticket increases from

e to 1. The gure is below.

(iv) eople expect the price of "# economic class tickets to fall next school

holida!s, which in$uence both demand and suppl!. The fall in expected

price decreases demand among clients for current season, demand curve

shifts leftward, and increases suppl! of "# services for now, suppl!

curve shifts rightward. #o it lowers the price from e to 1, we cannot sa!

what happens to *uantit! unless we know the magnitudes of changes.

The gure is shown below.

Question !

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a) 9ora 9abila owns the #weet hocolate stall in :; all. #he charges


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1= percent price rise brings a 1 percent increase in the *uantit! supplied,

so suppl! is inelastic.

;ecause the *uantit! supplied increases b! such a small percentage after one

month, the factors of production that are used to produce this good are more likel!

to be di4cult to obtain.

The elasticit! of suppl! e*uals the percentage change in the *uantit! supplied

divided b! the percentage change in the price.

3lasticit! of suppl! F 1 G 1= F =.1

(ii) "fter one !ear, the elasticit! of suppl! F 8 G 1= F .8.

The suppl! of the good has become more elastic after a !ear since the price

increased.

ossibl! other producers have graduall! started producing the good and with the

passage of time more factors of production can be reallocated.

c)(i) The explicit costs (3) are the cost of labor, the rent, the utilities, and the

cost of the furniture.

3 F


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(iv) The accounting prot (") e*uals the total revenue (T


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5uantit!

per week

agaLines

arginalutilit! perdollar

ce K creams at

price of 7


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(ii) rinter cartridges K /ligopol!-

" few number of rms produce identical product or can dierentiate b! price or

*ualit!

(iii)+ixed line telephone services K onopol!-

There usuall! onl! one compan! in countr!, which provides xed line telephone

service. t is hard to nd substitute.

(iv)


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(b) "fter microeconomics class one da!, !our friend, "bolfaLl suggests that taxing

food would be a good wa! for government to raise revenue because the demand for

food is *uite inelastic. riticall! evaluate his suggestion.

Answe

a)(i) ;efore the price support the e*uilibrium *uantit! was 7 billions of

pounds of onions per !ear at e*uilibrium price of 1M per pound.

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The market is e4cient because marginal cost e*uals marginal

benet.(ii) ii"fter the government introduced the price support the *uantit! of

onions demanded is billions of pounds per !ear, the *uantit!

produced is D billions of pounds per !ear, and the subsid! receivedb! onions farmers is D7 billions of dollars.

(iii)iii. The price support is ine4cient because marginal benet is less

than marginal cost. +armers gain- the! produce more and receive a

higher price on what the! sell in market as well as government

subsid!. onsumer lose- the! pa! more for onions and pa! taxes to

fund the government subsidies. The deadweight loss is C billions of

dollars (the area of gre! triangle). The outcome is unfair on both

views of fairness unless the onion farmers are poorer than

consumers, in which case it might be fair to boost farmersN income.b) +ood is not a luxur! good. t is widel! produced, broadl! consumed

product and generall! accounts for an important share of the famil!

budget of low2 and middle2income consumers. t is well established that

taxes on essentials such as food or drink take a larger share of income

from the poor than from the rich. Taxing the food would increase

government revenue because of higher prices charging for food. #ome

people would not able to aord

this prices and would change products for cheaper F worse products, forexample fast food or expired food, which would in$uence on their health

and decrease their ph!sical activit!.

Question #

(a) +aridLuan is a catsh farmer and the catsh market is perfectl! competitive.

When the market price is


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(vi) Oerive +aridLuan0s suppl! curve for catsh.

(b) ompare the performance of a single2price monopol! with that of perfect

competition.

Answe

a)(i) The graph is below(ii) The maximum prot earned b! +aridLuan is 1===


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ompared to a perfect competitive market, a

single2price monopol! produces at lower output

and charges a higher price

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final assingment group a1 (2)

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