An inferior good is that good whose consumption is due to the consumer?s inability to afford close substitutes. When income increases (even with a price fall) the demand for such goods will reduce as consumers now go for close substitutes eg. vegetable products like sukuma wiki.
A giffen good, on the other hand, is that whose consumption takes a substantial portion of Consumer?s income so that given a price fall (and therefore an increase in real income) consumers will not buy more than before eg. salt. A fall in price of a giffen good implies that some of the household?s money income has been freed with which they can now buy more superior goods while buying less of the giffen good. It then follows that all giffen goods are inferior but not all inferior goods are giffen.
Wilfykil answered the question on February 7, 2019 at 09:57
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Assume a consumer spends all his income in the purchase of two goods X and Y whose prices are Sh. 30 and Sh. 20 per...
(Solved)
Assume a consumer spends all his income in the purchase of two goods X and Y whose prices are Sh. 30 and Sh. 20 per unit respectively. The consumer‟s monthly income is Sh. 12,000. He is satisfied with various combinations of X and Y but prefers to spend his income in equal proportions on the two commodities, that is, at a ratio of 1:1 to maintain his level of satisfaction.
What is the effect of an increase in the consumers income from Sh. 12,000 to sh. 24,000 per
month?
Date posted:
February 7, 2019
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Answers (1)
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Assume a consumer spends all his income in the purchase of two goods X and Y whose prices are Sh. 30 and Sh. 20 per...
(Solved)
Assume a consumer spends all his income in the purchase of two goods X and Y whose prices are Sh. 30 and Sh. 20 per unit respectively. The consumer‟s monthly income is Sh. 12,000. He is satisfied with various combinations of X and Y but prefers to spend his income in equal proportions on the two commodities, that is, at a ratio of 1:1 to maintain his level of satisfaction.
Using clearly labeled diagram; Show the relevant budget line and indifference curves indicating the equilibrium position of
the consumer.
Date posted:
February 7, 2019
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Answers (1)
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If money supply in a given economy equals 500 while the velocity and price equal 8 and 2 respectively, determine the level of real and...
(Solved)
If money supply in a given economy equals 500 while the velocity and price equal 8 and 2 respectively, determine the level of real and nominal output.
Date posted:
February 7, 2019
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Answers (1)
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Suppose in a two commodity market model the supply and demand functions are given as:
Using...
(Solved)
Suppose in a two commodity market model the supply and demand functions are given as:
Using the functions provided, calculate the equilibrium values of prices and quantities
Date posted:
February 7, 2019
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Answers (1)
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Suppose in a two commodity market model the supply and demand functions are given as:
(Solved)
Suppose in a two commodity market model the supply and demand functions are given as:
Explain the relationship between the two commodities giving valid economic reasons
Date posted:
February 7, 2019
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Answers (1)
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PQR Ltd is the sole supplier of electricity in your country. It supplies electricity to two separate consumers, namely (i) industrial and commercial users and...
(Solved)
PQR Ltd is the sole supplier of electricity in your country. It supplies electricity to two separate consumers, namely (i) industrial and commercial users and (ii) domestic users. The company is able to charge different prices or tariffs to these two consumers. Suppose the PQR Ltd‟s total cost of producing electricity is given by the following cost function:
Determine The price elasticities of demand for the two markets (at equilibrium price and quantity).
Date posted:
February 7, 2019
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Answers (1)
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PQR Ltd is the sole supplier of electricity in your country. It supplies electricity to two separate consumers, namely (i) industrial and commercial users and...
(Solved)
PQR Ltd is the sole supplier of electricity in your country. It supplies electricity to two separate consumers, namely (i) industrial and commercial users and (ii) domestic users. The company is able to charge different prices or tariffs to these two consumers. Suppose the PQR Ltd‟s total cost of producing electricity is given by the following cost function:
Determine At what price will the outputs in each market be sold?
Date posted:
February 7, 2019
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Answers (1)
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PQR Ltd is the sole supplier of electricity in your country. It supplies electricity to two separate consumers, namely (i) industrial and commercial users and...
(Solved)
PQR Ltd is the sole supplier of electricity in your country. It supplies electricity to two separate consumers, namely (i) industrial and commercial users and (ii) domestic users. The company is able to charge different prices or tariffs to these two consumers. Suppose the PQR Ltd‟s total cost of producing electricity is given by the following cost function:
Determine The output produced and how much of this output will be sold in each market if PQR Ltd is to maximize profits?
Date posted:
February 7, 2019
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Answers (1)
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Bring out the salient features of a monopolistic competition market model
(Solved)
Bring out the salient features of a monopolistic competition market model
Date posted:
February 7, 2019
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Answers (1)
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Using a well labeled diagram, show and explain why in a perfectly competitive market structure, when the marginal revenue equals marginal cost, this is only...
(Solved)
Using a well labeled diagram, show and explain why in a perfectly competitive market structure, when the marginal revenue equals marginal cost, this is only a necessary but not sufficient condition for profit maximization.
Date posted:
February 7, 2019
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Answers (1)
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Under what circumstances might it be possible and profitable for a monopolist to charge different prices for his product in different markets?
(Solved)
Under what circumstances might it be possible and profitable for a monopolist to charge different prices for his product in different markets?
Date posted:
February 7, 2019
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Answers (1)
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The table below represents estimated national income values for hypothetical economy X in millions of shillings:
Gross National Product (at market prices) = 389.2
Depreciation allowance =...
(Solved)
The table below represents estimated national income values for hypothetical economy X in millions of shillings:
Gross National Product (at market prices) = 389.2
Depreciation allowance = 47.0
Indirect taxes less subsidies = 42.4
Business taxes = 11.4
Personal income taxes = 66.3
Government transfers = 59.3
Retained profits = 13.0
Based on the information provided, calculate the Net National Product at market price, the Net National Income (at factor cost), Personal Income and the disposable income for this economy
Date posted:
February 7, 2019
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Answers (1)
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Distinguish between Gross National and Gross Domestic products and account for the lower values of the former in developing economies.
(Solved)
Distinguish between Gross National and Gross Domestic products and account for the lower values of the former in developing economies.
Date posted:
February 7, 2019
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Answers (1)
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Suggest economic measures to curb inflation
(Solved)
Suggest economic measures to curb inflation
Date posted:
February 7, 2019
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Answers (1)
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What are the determinants of demand for labor?
(Solved)
What are the determinants of demand for labor?
Date posted:
February 7, 2019
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Answers (1)
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By use of diagrams, illustrate and explain the resultant changes on the equilibrium price and quantity from a simultaneous fall in price of a substitute...
(Solved)
By use of diagrams, illustrate and explain the resultant changes on the equilibrium price and quantity from a simultaneous fall in price of a substitute and an increase in the cost of raw materials for a specific commodity.
Date posted:
February 7, 2019
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Answers (1)
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A monopolistic firm with a linear demand curve finds that it can sell two units at Sh.12 or twelve units at Sh.2. Its fixed cost...
(Solved)
A monopolistic firm with a linear demand curve finds that it can sell two units at Sh.12 or twelve units at Sh.2. Its fixed cost is Sh. 20 and its marginal cost is constant at Sh. 3 per unit. Derive and plot the following:
Marginal cost, average total cost, marginal revenue and demand curves for this firm.
Date posted:
February 7, 2019
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Answers (1)
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Illustrate and explain the three stages associated with the law of variable proportions
(Solved)
Illustrate and explain the three stages associated with the law of variable proportions
Date posted:
February 7, 2019
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Answers (1)
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You have been hired as a consultant by a firm producing bread to advise on a pricing strategy that would
enable the firm to maximize profits....
(Solved)
You have been hired as a consultant by a firm producing bread to advise on a pricing strategy that would
enable the firm to maximize profits. This firm is a monopolist which sells in two distinct markets, one of
which is completely sealed off from the other.
As part of the analysis, you establish that the total demand for the firm‟s output is given by the
following equation:
Q = 50 – 0.5P
and the demand for the firm‟s output in the two markets is given by the following equations:
Q1 = 32 – 0.4P1 and
Q2 = 18 – 0.1 P2
Where: Q = total output
P = Price
Q1 = Output sold in Market 1
Q2 = Output sold in Market 2
P1 = Price charged in Market 1
P2 = Price charged in Market 2
The cost of production is given by C = 50 + 40Q
Where C = total cost of producing bread.
How much profit would the firm earn if it sold the output at a single price, and if it discriminates?
Date posted:
February 7, 2019
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Answers (1)
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You have been hired as a consultant by a firm producing bread to advise on a pricing strategy that would
enable the firm to maximize profits....
(Solved)
You have been hired as a consultant by a firm producing bread to advise on a pricing strategy that would
enable the firm to maximize profits. This firm is a monopolist which sells in two distinct markets, one of
which is completely sealed off from the other.
As part of the analysis, you establish that the total demand for the firm‟s output is given by the
following equation:
Q = 50 – 0.5P
and the demand for the firm‟s output in the two markets is given by the following equations:
Q1 = 32 – 0.4P1 and
Q2 = 18 – 0.1 P2
Where: Q = total output
P = Price
Q1 = Output sold in Market 1
Q2 = Output sold in Market 2
P1 = Price charged in Market 1
P2 = Price charged in Market 2
The cost of production is given by C = 50 + 40Q
Where C = total cost of producing bread.
What price must be charged in each market in order to maximize profits?
Date posted:
February 7, 2019
.
Answers (1)