EC5133: Kate works as a waitress and lives in Galway city. She works 8 hours per day, Monday to Saturday, and earns: Principles of Economics for Business Assignment, UOG, Ireland

Question 1

Kate works as a waitress and lives in Galway city. She works 8 hours per day, Monday to Saturday, and earns €15 per hour. She also babysits for her friend in Galway city on Friday nights and earns €50 from doing so. Kate recently visited her friend in Donegal and took 2 days off work (without pay) to do so. She travelled to Donegal on Friday morning and returned on Sunday night. The cost of travel to Donegal was €35. While in Donegal Kate went for dinner and drinks with her friend which cost her €70. Had she stayed in Galway she would have gone for dinner and drinks with her friend in Galway on Saturday night?

• What two trade-offs did Kate make in visiting her friend in Donegal?
• What was Kates’s opportunity cost of visiting her friend? Explain your answer.
• What was the true cost to Kate of visiting her friend? Explain your answer.

Question 2

The monthly demand and supply curves for chocolate cakes are given by the following equations:

QD = 2400 – 200P
QS = -1,600 + 200P

P = price per cake, Q = quantity

• What are the equilibrium price and quantity of chocolate cakes? Show your calculations.
• Using the demand and supply equations draw a demand and supply diagram and illustrate the equilibrium point. Your diagram should be drawn to an accurate scale and should include the intercepts on the price and quantity axes.
• If the price of chocolate cakes increases to €11, will this result in a shortage or a surplus? How much of a shortage of surplus will occur? Use the equations to find the answer. Show your calculations and illustrate the shortage or surplus in the diagram you drew in part (b).
• (i) What is the value of total revenue at the equilibrium price? Explain and show your calculation.
  (ii) Based on your knowledge of price elasticity of demand and using the mid-point method outline and explain how the firm should adjust its price to increase total revenue.
• Why might the government be interested in the price elasticity of demand for a particular good?

Question 3

• Using your knowledge of supply and demand and how markets work illustrate and explain the impact of the Covid-19 pandemic on the market for face masks over the past two and a half years. Explain how the market adjusted over this period.
• Outline, illustrate, and explain how two specific events occurring simultaneously would cause the price of cheese to fall.
• For a specific good of your choice outline and illustrate how a specific event(s) would cause
  (i) demand for the good to increase
  (ii) supply of the good to fall
  (iii) demand for the good to decrease and supply of the good to increase simultaneously
  (iv) the equilibrium price and quantity of the good to fall
• A normal good is a good for which demand increases when the price increases. True or False? Explain your answer.
• (i) If a good has a price elasticity of greater than 1, what does that mean?
  (ii) List and explain three circumstances in which the price elasticity of demand is greater than 1.
  (iii) Give three examples of goods that have a price elasticity of demand which is greater than 1 and explain why this is the case for each of the three goods.