Supply and Demand and Price
Assignment
Eco 101
1. a) Briefly explain the factors that determine the price elasticities of demand and supply. b) The accompanying table presents the prices and associated demand quantities of ready-made garments of Bangladesh at different world incomes.
Price of RMG Quantity demanded when Quantity demanded when world GDP is $ 65 trillion world GDP is $ 70 trillion $10 500,000 800,000 $15 350,000 730,000
i) Using the midpoint method, calculate the price elasticity of demand when the price increases from $10 to $15 and the world GDP is $ 65 trillion. Is supply elastic, inelastic or unit elastic?
ii) Using the midpoint method, calculate the income elasticity of demand when the world GDP increases from $ 65 trillion to $ 70 trillion and the price of RMG is $15. Is the good normal or inferior?
2) a) Graphically describe the effect of price ceiling and price floor set by the government.
b) The demand for MS-word software is very inelastic whereas the supply is relatively elastic. If an excise tax, T, is imposed on purchase, who is going to bear most of the burden - consumer or producer? Explain your answer with a diagram. (4)
3) Consider a perfectly competitive firm in the market for bottled milk. The following table presents information on price, quantity sold, and total costs for this firm:
|Quantity (in gallons) |Total Cost (in dollars) |
|0 |3 |
|1 |5 |
|2 |8 |
|3 |12 |
|4 |17 |
Eco 101
1. a) Briefly explain the factors that determine the price elasticities of demand and supply. b) The accompanying table presents the prices and associated demand quantities of ready-made garments of Bangladesh at different world incomes.
Price of RMG Quantity demanded when Quantity demanded when world GDP is $ 65 trillion world GDP is $ 70 trillion $10 500,000 800,000 $15 350,000 730,000
i) Using the midpoint method, calculate the price elasticity of demand when the price increases from $10 to $15 and the world GDP is $ 65 trillion. Is supply elastic, inelastic or unit elastic?
ii) Using the midpoint method, calculate the income elasticity of demand when the world GDP increases from $ 65 trillion to $ 70 trillion and the price of RMG is $15. Is the good normal or inferior?
2) a) Graphically describe the effect of price ceiling and price floor set by the government.
b) The demand for MS-word software is very inelastic whereas the supply is relatively elastic. If an excise tax, T, is imposed on purchase, who is going to bear most of the burden - consumer or producer? Explain your answer with a diagram. (4)
3) Consider a perfectly competitive firm in the market for bottled milk. The following table presents information on price, quantity sold, and total costs for this firm:
|Quantity (in gallons) |Total Cost (in dollars) |
|0 |3 |
|1 |5 |
|2 |8 |
|3 |12 |
|4 |17 |