Question

subject: principle of microeconomics

please answer all (no plagiarism)

The Questions 1-Describe some of the trade-offs faced by each of the following: a. a family deciding whether to buy a new car b. a member of Congress deciding how much to spend on national parks c. a company president deciding whether to open a new factory d. a professor deciding how much to prepare for class e. a recent college graduate deciding whether to go to graduate school 2-Consider the market for minivans. For each of the events listed here, identify which of the determinants of demand or supply are affected. Also indicate whether demand or supply increases or decreases. Then draw a diagram to show the effect on the price and quantity of minivans. a. People decide to have more children. b. A strike by steelworkers raises steel prices. c. Engineers develop new automated machinery for the production of minivans. d. The price of sports utility vehicles rises. e. A stock market crash lowers people's wealth 3-Suppose the price elasticity of demand for heating oil is 0.2 in the short run and 0.7 in the long run. a. If the price of heating oil rises from $1.80 to $2.20 per gallon, what happens to the quantity of heating oil demanded in the short run? In the long run? (Use the midpoint method in your calculations.) b. Why might this elasticity depend on the time horizon? 4. A price change causes the quantity demanded of a good to decrease by 30 percent, while the total revenue of that good increases by 15 percent. Is the demand curve elastic or inelastic? Explain.

Answer 1

1. a)

Opportunity cost is the value of alternative action that is given up.

A family deciding to buy a new car will have to give up going for a vacation, buying other products, the interest on the purchase amount if invested.

b) The trade off in this case would be the value that the Congressman has to give up if the funding is used for other development purposes like building more bridges, building or repairing highways,

c) The trade off would be expanding the existing factory, upgradation of equipment, training of workers, market research

d) The value of free time that the professor gives up, the time value of research that the professor has to give up.

e) The value of salary foregone if employment is taken up,

2)

a) Consumer size will increase. Demand will increase. Equilibrium price and quantity will increase.

b) Supply of minivans will decrease. The equilibrium price increases and quantity falls.

c) Supply of minivans will increase. The equilibrium price decreases and quantity increases.

d) Demand for minivans will increase as utility vans are substitutes. Equilibrium price and quantity will increase.

e) Demand for minivans will decrease and equilibrium price and quantity will decrease.

3 b)

In the long run people can find alternative sources of fuel.

3 PED in the PED in the short run = long run 0.2 0.7 = PED = Q1+Q0 midpoint method 2 ( Pin Pol ( Pitpo where New old New Q = Ro- Pa quantity quantity price $2.20 $1.80. price old Q Tao 0.2 - Q QO 40 2.20 -1.80 ( 2,20 Flies in (0.20) (0.40) change Percentage demand 4. = 0.04 Dernand will decrease by 4.1. In the long run PED = 0.7 Percentage charge in price = 0.2 Percentage in demand ! 0.7 x 0.2= 0.14 on 14.). decrease by 14.1. in the Demand will Dema long run.