UESTIONTWO.

SupposetheDailyGraphicNewspaperestimatesthatifitraisesthepriceofitsnewspaperfrom

Ghc1.00toGhc1.50thenthenumberofsubscriberswillfallfrom50,000to40,000.

a.WhatisthepriceelasticityofdemandfortheDailyNewspaperwhenelasticityis

calculatedusingthemidpointmethod?

b.Whatistheadvantageofusingthemidpointmethod?

c.

IftheDailyNewspaper'sonlyconcernistomaximizetotalrevenue,shoulditraisethe

priceofanewspaperfromGhc1.00toGhc1.50?Whyorwhynot?

d.Supposethereisanincreaseinconsumers'incomes.Inthemarketforautomobiles

(anormalgood),doesthiseventcauseanincreaseindemandoranincreaseinquantity

demanded?Doesthiscauseanincreaseinsupplyoranincreaseinquantitysupplied?

(Explain.NB:Explanationmustnotbemorethanhalfapage.)

e.Supposethereisanadvanceinthetechnologyemployedtoproduceautomobiles.In

themarketforautomobiles,doesthiseventcauseanincreaseinsupplyoranincrease

inthequantitysupplied?Doesthiscauseanincreaseindemandoranincreaseinthe

quantitydemanded?ExplainNB:Explanationmustnotbemorethanhalfapage.

f.

ThedemandandsupplyfunctionsfortworelatedcommoditiesAandBintwodifferent

marketsaredefinedbelow:

QdA=410-5PA-2PBQdB=295-PA-3PB

QsA=-60+3PAQsB=-120+2PB

i.Findtheequilibriumconditionsinthetwomarkets

ii.HowaregoodsAandBrelated?Explainyouranswer