ECON 260 Question 1

ECON 260 5

ECON260

Question1

Price

10

9

8 E&gt 1

7

6

5 E= 1

4

3 E&lt 1

2

1

0 1 23 4 5 67 8 9 10 Quantity

Question2

Ifthe RTA increases the bus fare from Dubai to Abu Dhabi, the increasein price will result to a decrease in the number of people using busfor transport as they respond to the change in price however, theproportion of people that will change using buses for transport tothat of the price will be less. On the other hand, the increase inthe bus fare will not change the demand for transport from Dubai toAbu Dhabi. This is an implication that an increase of bus fare fromDubai to Abu Dhabi will have an effect of increasing the totalrevenue for the RTA. The following diagram shows the result ofincreasing bus fare from Dubai to Abu Dhabi

Price

P2

P1

Q2 Q1Number of peopleusing bus for transport

Fromthe diagram, an increase in bus fare from P1 to P2 will have aneffect of decreasing the number of people using bus for transporthowever, the demand will not change. This implies that the RTA willincrease its revenues by increasing the bus fare.

Question3

Asa result technology improvement, there will be an incentive for firmsto increase their production of personal laptops since they becapable of producing personal laptops at a low price. Thus, thesupply of personal laptops will increase in the market. On the otherhand, since people have realized the immense use of having a personallaptop, the quantity of personal laptops demanded will increase. Thiswill have an effect of lowering the equilibrium price point. This isindicated in the diagram below, where equilibrium moves from E1 toE2. The new equilibrium price will decrease while the equilibriumquantity would increase.

Price S1 S2

P1 E1

P2 E2

Q1 Q2

Question4

Amarket is a place, where buyers and sellers meet for the purpose ofexchanging commodities and services (Mankiw,2011). Equilibrium in the market occurs when the quantity supplied tothe market equals the quantity demanded (Mankiw,2011). From the equations given, quantity supplied will be equal toquantity supplied therefore 16 – 1p = -4 + 1p p = 10.Substituting for p in the first equation, Q = 6. Thus, theequilibrium price level is 10, while equilibrium output is 6.

Question5

Q

TC

FC

VC

AVC

ATC

MC

1

2000

1000

1000

1000

2000

2

2500

1000

1500

750

1250

500

3

2800

1000

1800

600

1400

300

4

3300

1000

2300

575

825

500

5

4000

1000

3000

600

800

700

6

4800

1000

3800

633

800

800

7

6000

1000

5000

714

857

1200

TheMC at output level of 4 units is 500

References

Mankiw,N. G. (2011).&nbspPrinciplesof economics.Mason, Ohio: Thomson South-Western.