Question

(8 marks total) QUESTION 11 a) Why are both the price elasticity of demand and the price elasticity of supply likely to be greater in the long run? (3 marks) b) Choose a good and draw both a demand and supply curve for that good. Explain and show how an increase in household income would affect the equilibrium price and quantity. (5 marks) QUESTION 12 A firm will continue producing in the short run even if it is making a loss, providing it can cover its variable costs. Explain why with a graph. Just how long will it be willing to continue making such a loss? (6 marks) QUESTION 13 Some roads could be regarded as public goods but some could be provided by the market. Which types of road could be provided by the market? Why? Would it be a good idea? (6 marks)

Answer 1

Answers 1:a lonp chonge elast'city of demand and Yum Their s Suply 7ater enougk time do Consumer Side, Consuoness ind ensi amy Change Suppy Shde Both are The Lomy because vasables On the Tthei's demand when Thesr is Change OThet facfer . Im Paice or any Smilady Pooduces als& the On to expand raduction easies it he une Commpeated masket in Lony Short To do So, is not Costie m .une Arrgwer 2: ) tor normal good (let it be X Choose any lets Comsuners income will X. An me seause im Cause ceplainntieon Chorny Cusve of good he Shifts demand demand ter X Qund e Imcrease will Cause will Shitt ightivasdr. given fguse in Comsumels tmeonne demand Shewn Cusve Dhe fo tn Ceese demand Cusve Shufts frem D, to D whick Cuts Supply Curne at pa tnd There tore Prica Imcreases tum P to P eqvili baium Imereases D2 1Di quad ty dememded of tremm Qto Fimda onental gsal of fism equile Profit maximi 2atib m oim point. A Firm wiD Amswer 3 maximi2ed Profits veack equuli brivm when (i) MR= MC (i) Mc must Cut MR Cusve nm belew afe A fism Suffers less fin Sht Rum sMC SAG Shown 1 SMC= MR = AR<SAG as given figule Nete althegh poit e' N M eqvilibrivm is establi's hed at LOSS less. Im Shust rum mcus a the fism AR- MR In Short um, evenafter making Lism will Staty im the business less, a 1t it Can menage vatable Cost C Qe Shoat un Eime pesioo! awhrck hes Costs So trm Stops pro duchen, Then Stl it has Hixed Cost. There fere, t has to Droduce Shosf s a botdixed and vasable to im cuse in Suel a way to Aum at least vasable Cost Cover