 # Microeconomic Theory

| July 20, 2016

Paper , Order, or Assignment Requirements

Learning outcomes to be examined in this assessment (a) Analyse and explain the economic behaviour of individual households and firms within the context of an uncertain environment and limited information.

(b) Apply microeconomic theory to the analysis of contemporary issues.

(c) Examine the limitations of microeconomic theory in relation to production and consumption issues

Summative

Assessment 1. Drawing a supply and demand diagram in each case, illustrate the effect of the following on the market for apples. Make clear the direction of change in both price and quantity sold. (10 marks). Learning Outcome (a)

1. Scientists find that an apple a day does indeed keep the doctor away.
2. The price of oranges triples. iii. A drought shrinks the apple crop to half its normal size.
3. Thousands of college students abandon the academic life to become apple pickers.

1. Consider a competitive market for which the quantities demanded and supplied (per year) at various prices are given as follows: (20 marks). Learning outcome (a) and (b)

Price (£) Demand (millions) Supply (millions)

60 22 14

80 20 16

100 18 18

120 16 20

1. What are the equilibrium price and quantity?
2. Calculate the price elasticity of demand when the price is \$80.

iii. Calculate the price elasticity of supply when the price is \$100

1. Suppose the government sets a price ceiling of \$80. Will there be a shortage, and if so, how much?

1. For each of the following cases, draw a representative indifference curve for red and blue marbles passing through the point (5, 5). Use the quantity of red marbles as the number on the horizontal axis, and that for blue on the vertical axis. Assume these marbles are identical to each other except for colour. (10 marks). Learning Outcome (c)

1. Marbles are used to identify hot and cold water faucets, and are therefore valuable only in pairs.

ii.

Marbles are used to line the bottom of an aquarium, and the person prefers more even mixtures of colours to uneven.

1. Draw two diagrams – the first to represent an individual firm in a perfectly competitive market in long-run equilibrium, and the second to represent a monopolist. Explain why monopoly leads to a deadweight loss. (30 marks). Learning Outcome

(b)

5.

Explain why goods will not be distributed efficiently among consumers if the marginal rate of transformation (MRT) is not equal to the consumers’ marginal rate of substitution (MRS). (10 marks). Learning outcome (a)

6.

If the marginal cost of production is greater than the average cost, do you know whether the average cost is increasing or decreasing? Explain. (20 marks). Learning Outcome (b) and

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