Q2The following table sets the demand and the supply schedules for roses on a normal weekend.

Price (dollars per rose)	Quantity demanded Quantity supplied (roses per week)
4	150	60
6	100	100
9	70	130
12	50	150

1. What is the market equilibrium price and quantity? Why? 1 mark

1. Describe the situation in the rose market if the price of a rose is $4. How will the price adjust? 2 marks

1. Describe the situation in the rose market if the price of a rose is $12. How will the price adjust? 2 marks

1. On Father's Day, demand increases by 160 roses. What is the equilibrium price of a rose on Father's Day when the sellers plan to increase the normal supply by 60 roses? Complete the table to show your result. 10 marks

Price (dollars per rose)	Quantity demanded Quantity supplied (roses per week)	New quantity demanded	New quantity supplied
4	150	60
6	100	100
9	70	130
12	50	150

Q3 Look at the two tables below. 10 marks

Consumers		Producers
Person	Maximum Price Willing to Pay ($)	Actual Price (Equilibrium Price) ($)	Person	Minimum Acceptable Price ($)	Actual Price (Equilibrium Price) ($)
Micky	$51	$21	Jackson	$18	$21
Garry	42	21	Ambry	21	21
Laurie	39	21	Johnny	24	21
Suhana	36	21	Cindy	27	21
Romi	33	21	Laurie	30	21
Peter	30	21	Garry	33	21

a. What is the economic surplusif Micky purchases a unit from Cindy? b. What is the economic surplus if Romi buys a unit from Ambry? c. What is the economic surplus if Peter purchases a unit from Johnny?

d. What is the economic surplus if Suhana purchases a unit from Garry?

e.If you match up pairs of buyers and sellers so as to maximize the total surplus of all transactions, what is the largest total surplus that can be achieved?

Q4 a) In an attempt to curb the use of illegal drugs such as cocaine or the use of harmful legal substances such as tobacco, government can use two basic options: Decrease demand through public education or decrease supply through legal restrictions or taxes.

1. Explain how each type of policy reduces quantity in affected markets? What is the result on the price as seen by consumers for each type of policy? 5 marks
2. Which of these two types of policies is likely to have more long-term success? Why?

5 marks

Q5 With current technology, suppose a firm is producing 4800 packets of banana bread daily. Assume that the least-cost combination of resources in producing those loaves is 45 units of labour, 30 units of land, 38 units of capital, and 55 unit of entrepreneurial ability, selling at prices of $60, $44, $65, and $44, respectively. Firm sells these 4800 packets at $4 per packet. Based on the given information, answer the questions given below. 12 marks

Total revenue:

Cost of labour:

Cost of land:

Cost of capital:

Cost of entrepreneurship:

Total cost:

Profit or loss:

Will it continue to produce banana bread? Why?

If this firm's situation is typical for the other makers of banana bread, will resources flow toward or away from this bakery good?

Q6 Consider the following estimated price, cross and income elasticity for selected commoditiesin the Canadian market. Fill in the blanks based on the fact whether the

1. Demand is elastic, inelastic etc.
2. Products are substitutes or complements
3. Products are inferior, normal or independent

Estimated coefficients of elasticity and types of goods/products: 8 marks

1. E_dfor juice is 2.4. The demand for juice is --
2. E_dfor salt is 0.15. The demand for salt is...
3. E_y for mixed fruit is 3.25. This product is ..
4. E_xyfor cheese and butter is -0.25. These products are ..
5. E_d for life saving medicine = 0. Demand for medicine is ....
6. E_xy for electricity and natural gas is 1.2. These products are ..
7. E_y for whole wheat bread is -0.5. This product is ..
8. E_xy for onion and laptop is 0. These products are ..

Q7 Calculate price elasticity of demand when price changes from $30 to $10 using the Mid-Point method? Is it elastic? Why? 4 marks

Q8: Assume that you are a Canadian business owner. You may face any of the following business scenarios in the market. Complete the tableand answer the questions given below the table assuming a decrease in the pricelevel. 8 marks

Business scenario	Price	Qt.	TR	Price elasticity of demand as per the TR Test
(A)	20 18	10 20
(B)	16 14	25 28
(C)	12 10	40 48

1. In which business scenario, will the PRICE CUT be a smart decision? Why?

1. In which business scenario, will the PRICE INCREASE be a smart decision? Why?

1. Identify the business scenario in which price changes do not bring any change in the total revenue.

Q9 Harry Smith left his job at a large corporation where he had worked as a chief engineer. He was getting $90000 as yearly salary. He has set up Smith Tool Company. Smith Tool Company earned total revenue $700000 in first year. The material cost was $50000; costs for rented equipment were $28000, salary given to the security man was $19000 and wages given to workers were $188007 in a year. The interest forgone for the invested funds was $24000 per year. Harry estimated his entrepreneurial talent was worth $21450 per year. He was also offered $32680 per year to train employees in another firm. Two students assist him managing his account books for which they are paid $5000 each per year. Find accounting profits and economic profits for Smith Tool Company. Should Harry Smith stay in his business? Why? 15 marks

Explicit costs =

Implicit costs =

Economic costs =

Accounting profits =

Economic profits =

Should Harry Smith stay in his business? Why?

Q10 Calculate AP and MP for answering the questions given below the table. 8 marks

Units of variable factor (workers per day)	Total product (Chairs per day)	Average product (AP)	Marginal product (MP)
0	0	---------------------	---------------------
1	2
2	5
3	9
4	12
5	14
6	15
7	15
8	14

i) At what level of total product, AP is maximum and equal to MP?

1. At what unit of labour MP is negative?
2. At what level of total product (TP), the marginal product (MP) is zero?