Assessment Questions on Economics Essay Example

Assessment Questions on Economics

Assessment Questions on Economics

Question One

rice P

oD

Quantity (Potatoes)

The above demand/supply curve shows a rightward shift of the demand curve from (Do to D1, while the supply curves (So) remainconstant. The rightward shift depicts an increase in the demand for Potatoes following a decrease in incomes. Therefore, there exist an inverse relationship between income and demand for inferior goods. The above diagram explains the effect of a reduction in incomes on the demand for potatoes (inferior goods). When incomes decrease, the demand for Potatoes increases.

Question Two

One of the major externality in the technology industry is environmental pollution. Most of the production processes results in emission of unsafe waste materials.

The government aims at increasing output and consumption by increasing the level of human capital. Increased human capital would result to increased output and consumption.

In order to achieve its policy objective of having more students enroll for technical courses, the government should subsidize the enrollment fees for the students.

rice (Fee) SoP

Po

P1

uantity demanded Q

From above demand/ supply curve, a decrease in fee would result to an increase in the number of students enrolling for technical courses.

Question Three:

Perfect Competition

Supply

rice (p)P

In a perfect Competition, the price is determined by the market forces of demand and supply. The output depends on the prevailing market price. Perfect Competition is said to be efficient since the market clears such that there is neither surplus nor deficit. The area above Price (p) represent consumer surplus while the area below Price (p) indicates the producer surplus. In a perfect competition, both areas are usually equal. In a perfect market, the consumer and producer surplus totals are always equal.

Monopoly Market

Price

C

m MCP

c P DP

MR AR

Quantity

In a monopoly market, the price is set by the monopolist at Pm. The Monopolist price is usually higher than the Perfect market price Pc. Monopolist produce low output (Qm) at a higher price (Pm). A monopoly market is said to be inefficient since it does not meet market demand (Pm). The total producer surplus is usually more than the total consumer surplus in a monopoly market. Part of the consumer surplus is transferred into producer surplus.

Reference

Mankiw, N. G. (1985). Small menu costs and large business cycles: A macroeconomic model of monopoly. The Quarterly Journal of Economics, 529-537.