Anonymous
Jun 4
1. Discuss the exceptions of the law of demand?
1. Discuss the exceptions of the law of demand?
2. Given the following demand function; (4.5 mark)
Qx100-0.25Px+0.5Y-5Py, and
Qx5, Px 3 birr, Y = 20 birr and Py = 4birr
Where Qx Quantity of good X, Px Price of good Y, Y the income of the individual and Py the price of good Y. Calculate,
a. The price elasticity of demand of good X and interpret your result.
b. The income elasticity of demand of good X and interpret your result.
c. The cross price elasticity of good X for good Y and interpret your result.
3. A firm operates in a perfectly competitive market. The market price of its product is 4 birr and the total cost function is given by TC 1/30-50+200+50, where TC is the total cost and Q is the level of output. (4 mark)
a. What level of output should the firm produce to maximize its profit?
b. Determine the level of profit at equilibrium.
c. What minimum price is required by the firm to stay in the market?
4. Consider an economy that produces and consumes Bread and Automobile. Data for two different years 2010 and 2011
is given in the following table.
Year
2010
2011
Price of automobiles
Year 2010:- $5,000
Year 2011:- $6000
Price of a loaf of breads
Year2010:- $10
Year 2011:-$20
Number of automobiles produced
Year2010 :-1000
year2011:-120
Number of a loaf of breads produced
year2010:-500,000 year2011:-400,000
Using the year 2010 as a base year,
A. Calculate the nominal and real GDP of 2011.
B. Find the value of GDP Deflator for the year 2011 and interpret
C. Calculate the inflation rate in 2011.
5. A firm has a short run total cost function C (Q) = 90°+441. At what quantity of output is short run average cost minimized?
6. Discuss the macroeconomic problems and its instrument to solve them?
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2. Given the following demand function; (4.5 mark)
Qx100-0.25Px+0.5Y-5Py, and
Qx5, Px 3 birr, Y = 20 birr and Py = 4birr
Where Qx Quantity of good X, Px Price of good Y, Y the income of the individual and Py the price of good Y. Calculate,
a. The price elasticity of demand of good X and interpret your result.
b. The income elasticity of demand of good X and interpret your result.
c. The cross price elasticity of good X for good Y and interpret your result.
3. A firm operates in a perfectly competitive market. The market price of its product is 4 birr and the total cost function is given by TC 1/30-50+200+50, where TC is the total cost and Q is the level of output. (4 mark)
a. What level of output should the firm produce to maximize its profit?
b. Determine the level of profit at equilibrium.
c. What minimum price is required by the firm to stay in the market?
4. Consider an economy that produces and consumes Bread and Automobile. Data for two different years 2010 and 2011
is given in the following table.
Year
2010
2011
Price of automobiles
Year 2010:- $5,000
Year 2011:- $6000
Price of a loaf of breads
Year2010:- $10
Year 2011:-$20
Number of automobiles produced
Year2010 :-1000
year2011:-120
Number of a loaf of breads produced
year2010:-500,000 year2011:-400,000
Using the year 2010 as a base year,
A. Calculate the nominal and real GDP of 2011.
B. Find the value of GDP Deflator for the year 2011 and interpret
C. Calculate the inflation rate in 2011.
5. A firm has a short run total cost function C (Q) = 90°+441. At what quantity of output is short run average cost minimized?
6. Discuss the macroeconomic problems and its instrument to solve them?
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ChatGPT
Jun 4
The law of demand states that as the price of a good or service increases, the quantity demanded decreases, and vice versa. However, there are some exceptions to this law:
1. Veblen goods: These are luxury goods that people demand more of as the price increases because they are seen as status symbols. Examples include designer clothing, luxury cars, and high-end jewelry.
2. Giffen goods: These are inferior goods for which demand increases as the price increases. This is because as the price of the good rises, consumers may not be able to afford more expensive alternatives and continue to purchase the inferior good. An example of this could be low-quality staple foods for low-income individuals.
3. Speculative goods: These are goods for which demand increases as the price increases due to speculation about future price increases. This can be seen in markets such as real estate or cryptocurrency, where people buy more as prices rise in anticipation of further price increases.
4. Necessities: Some goods are considered necessities, such as food, water, and shelter, for which demand remains relatively constant regardless of price changes. People will continue to purchase these goods even if the price increases because they are essential for survival.
5. Seasonal goods: Demand for certain goods may increase during specific seasons or holidays, regardless of price changes. For example, demand for Christmas decorations may increase during the holiday season, even if prices are higher.
Overall, while the law of demand generally holds true, there are exceptions based on the unique characteristics of certain goods and consumer behavior.
1. Veblen goods: These are luxury goods that people demand more of as the price increases because they are seen as status symbols. Examples include designer clothing, luxury cars, and high-end jewelry.
2. Giffen goods: These are inferior goods for which demand increases as the price increases. This is because as the price of the good rises, consumers may not be able to afford more expensive alternatives and continue to purchase the inferior good. An example of this could be low-quality staple foods for low-income individuals.
3. Speculative goods: These are goods for which demand increases as the price increases due to speculation about future price increases. This can be seen in markets such as real estate or cryptocurrency, where people buy more as prices rise in anticipation of further price increases.
4. Necessities: Some goods are considered necessities, such as food, water, and shelter, for which demand remains relatively constant regardless of price changes. People will continue to purchase these goods even if the price increases because they are essential for survival.
5. Seasonal goods: Demand for certain goods may increase during specific seasons or holidays, regardless of price changes. For example, demand for Christmas decorations may increase during the holiday season, even if prices are higher.
Overall, while the law of demand generally holds true, there are exceptions based on the unique characteristics of certain goods and consumer behavior.
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Google Gemini AI
Jun 4
Exceptions to the Law of Demand:
1. Giffen Goods:
- Inferior goods that are demanded more when their price increases and less when their price decreases.
- Occurs when the substitution effect is weaker than the income effect.
- Example: Potatoes in Ireland during the Great Famine.
2. Veblen Goods:
- Luxury goods that are demanded more when their price increases and less when their price decreases.
- Conspicuous consumption; perceived as a status symbol.
- Example: Designer handbags.
3. Necessities:
- Goods that are essential for survival.
- Demand remains relatively constant regardless of price changes within a certain range.
- Example: Food, water, shelter.
4. Addictive Goods:
- Goods that create physiological or psychological dependence.
- Price changes may have little impact on demand due to the addiction factor.
- Example: Cigarettes, drugs.
5. Impulse Goods:
- Goods that are purchased on a whim or without prior planning.
- Demand may fluctuate greatly based on factors like availability, marketing, and emotional triggers.
- Example: Candy, magazines.
6. Lumpy Goods:
- Goods that are purchased in large, discrete quantities (e.g., cars, furniture).
- Demand may jump or decrease significantly at certain price points.
- Example: A consumer may buy a new car if the price drops below a threshold.
7. Habitual Goods:
- Goods that are consumed regularly out of habit.
- Demand may be slow to adjust to price changes.
- Example: Coffee, newspapers.
8. Joint Demand:
- When the demand for one good is directly tied to the demand for another.
- A price change in one good may affect the demand for both.
- Example: Gasoline and cars.
9. Competitive Inferior Goods:
- Inferior goods that are substitutes for other, superior goods.
- A price increase in the superior good may increase the demand for the inferior good, violating the law of demand.
- Example: Generic brands versus name brands.
10. Rationality Assumptions:
- The law of demand assumes rational decision-making by consumers.
- In reality, emotional factors, biases, and heuristics can influence demand patterns, leading to deviations from the predicted curve.
1. Giffen Goods:
- Inferior goods that are demanded more when their price increases and less when their price decreases.
- Occurs when the substitution effect is weaker than the income effect.
- Example: Potatoes in Ireland during the Great Famine.
2. Veblen Goods:
- Luxury goods that are demanded more when their price increases and less when their price decreases.
- Conspicuous consumption; perceived as a status symbol.
- Example: Designer handbags.
3. Necessities:
- Goods that are essential for survival.
- Demand remains relatively constant regardless of price changes within a certain range.
- Example: Food, water, shelter.
4. Addictive Goods:
- Goods that create physiological or psychological dependence.
- Price changes may have little impact on demand due to the addiction factor.
- Example: Cigarettes, drugs.
5. Impulse Goods:
- Goods that are purchased on a whim or without prior planning.
- Demand may fluctuate greatly based on factors like availability, marketing, and emotional triggers.
- Example: Candy, magazines.
6. Lumpy Goods:
- Goods that are purchased in large, discrete quantities (e.g., cars, furniture).
- Demand may jump or decrease significantly at certain price points.
- Example: A consumer may buy a new car if the price drops below a threshold.
7. Habitual Goods:
- Goods that are consumed regularly out of habit.
- Demand may be slow to adjust to price changes.
- Example: Coffee, newspapers.
8. Joint Demand:
- When the demand for one good is directly tied to the demand for another.
- A price change in one good may affect the demand for both.
- Example: Gasoline and cars.
9. Competitive Inferior Goods:
- Inferior goods that are substitutes for other, superior goods.
- A price increase in the superior good may increase the demand for the inferior good, violating the law of demand.
- Example: Generic brands versus name brands.
10. Rationality Assumptions:
- The law of demand assumes rational decision-making by consumers.
- In reality, emotional factors, biases, and heuristics can influence demand patterns, leading to deviations from the predicted curve.
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