Question

QUES 1

Consider the market for bus service in a city. Explain by using a SKETCH of supply and demand curves, how each of the following actions will affect the market. (Please consider each case separately).

a) Taxi drivers go on strike.(5 marks)

b) Gasoline prices increase. (Hint: The changes for consumers and bus suppliers are in the same magnitude).(5 marks)

c) Half the downtown parking lots are converted to office buildings.(5 marks)

QUES 2

The World Health Organization reported that face mask demand is up by a multiple of 100 and prices, by 20. At 20 million, the number of face masks China can produce each day needs to double. Correspondingly, a Bloomberg Opinion writer reported on January 31 that CVS, Lowe's, Staples, and even Amazon had sold out of CDC recommended N95 air filtration face masks.

Elsewhere, in Hong Kong, panic buying provoked a mixed reaction. While prices for masks were way up, some pharmacies were distributing them for free. One "citizens group" even secured financing and bought a mask making machine.

Hoping to increase their capacity, they want to sell a cheap mask. The response in Lao s was a ceiling on mask prices. The government said price hikes were illegal and sellers would be monitored. Asked about production , they "encouraged" manufacturers to boost supply .

(Schwartz, 2020 )

a) Based on the article above, use suitable diagram(s) for mask market, explain why price rise when there are shortages and fall when there are surpluses. (10 marks)

b) Discuss the introduction of price ceiling policy by a government would solve the problem of scarcity in the economy.

(10 marks)

QUES 3

You are trying to decide whether to take a vacation. Most of the costs of the vacation (airfare, hotel, and forgone wages) are measured in dollars, but the benefits of the vacation are psychological. How can you compare the benefits to the costs?

QUES 4

Firms and household interact in the market economy where factors of production, good and services, and money are moving and circulate. Discuss the circular flow of market using appropriate diagram.

QUES 5

Determine scenarios below either its TRUE or FALSE. Justify your answer by using any diagram(s) to support your answer.

a) An increase in the incomes of baseball fans in New York leads to a rightward movement along the demand curve but does not shift the demand curve for Yankees tickets.(5 marks)

b) For consumers, chocolate chip cookies and doughnuts are substitutes. So, an increase in the price of chocolate chip cookies will lead to a rightward shift in the demand curve for doughnuts.(5 marks)

c) Young drivers often buy used cars. An increase in the legal driving age to twenty one shifts the demand curve for used cars leftward, whereas lowering the age to fifteen shifts the demand curve rightward. (5 marks)