Managerial Economics – ECON 501

Case Study (10 Marks)
This case contains Learning outcomes K1, K2, S1, C1 and C2 as stipulated in the syllabus of the course.
Coal Shortage at China Plants

Chinese power plants have run short of coal, an unintended effect of government-mandated price controls designed to shield the public from rising global energy costs. Beijing has also frozen retail prices of gasoline and diesel. That helped farmers and the urban poor, but it has spurred sales of gas-guzzling luxury cars and propelled double-digit annual growth in fuel consumption. At the same time, oil refiners are suffering heavy losses and some have begun cutting production, causing fuel shortages.

1. Are China’s price controls described in the news clip price floors or price ceilings?
2. Explain how China’s price controls have created shortages or surpluses in the markets for coal, gasoline, and diesel.
3. Illustrate your answer to part (b) graphically by using the supply and demand model.
4. Explain how China’s price controls have changed consumer surplus, producer surplus, total surplus, and the deadweight loss in the markets for coal, gasoline, and diesel.

University of Modern Sciences
Managerial Economics – ECON 501
Assignment (20 Marks)

Name: ————————————————— ID # ———————————–
This Assignment contains leaning Outcomes K1, S1 and C1 as stipulated in the course syllabus

Multiple choice questions (10 Marks)

1) Gadgets, Inc. can increase its total revenue by raising the price of its product. From this result we can conclude that the
A) price increase increases demand for the firm’s product.
B) firm sells an inferior good.
C) demand for the firm’s product is price inelastic.
D) demand for the firm’s product is price elastic.

2) Widgets, Inc. can increase its total revenue by lowering the price of its product. From this result we can conclude that the
A) decrease in price increases demand for the firm’s product.
B) firm sells an inferior good.
C) demand for the firm’s product is price inelastic.
D) demand for the firm’s product is price elastic.

3) If OPEC cuts oil production to increase their total revenue, we know that
A) the demand for gasoline will decrease.
B) the price of gasoline will fall.
C) the demand for oil in the global market is inelastic.
D) OPEC faces a horizontal demand for oil curve.

4) If OPEC cuts oil production to increase their total revenue, we know that the
A) demand for gasoline will decrease.
B) price of gasoline will rise.
C) demand for oil in the global market is elastic.
D) supply of gasoline will increase.

5) If OPEC cuts oil production to increase their total revenue, we know that the
A) demand for gasoline will decrease.
B) price of gasoline will fall.
C) demand for oil in the global market is elastic.
D) supply of gasoline will decrease.

6) The figure above shows the market for digital cameras. If the price of film cameras falls, the efficient quantity of digital cameras will be thousand cameras and the marginal cost of a digital camera will be .
A) less than 300; less than $300
B) greater than 300; less than $300
C) 300; greater than $300
D) greater than 400; greater than $310

7) The figure above shows the market for digital cameras. If consumers’ incomes rise and a digital camera is a normal good, the efficient quantity of digital cameras to produce will be thousand cameras and the marginal cost of a digital camera will be .
A) less than 300; less than $300
B) greater than 300; less than $300
C) 300; greater than $300
D) greater than 300; greater than $300

8) The figure above shows the market for digital cameras. If consumers’ income rise and a digital camera is a normal good, the efficient quantity of digital cameras will be thousand cameras and the equilibrium quantity will be thousand cameras.
A) less than 300; less than 300
B) greater than 300; less than 300
C) 300; greater than 300
D) greater than 300; greater than 300

9) The figure above shows the market for digital cameras. The price of film cameras falls. In the new equilibrium, the price of a digital camera will be and the marginal benefit from the last digital camera purchased will be .
A) less than $300; less than $300
B) greater than $300; less than $300
C) $300; greater than $300
D) greater than $300; greater than $300

10) The figure above shows the market for digital cameras. If there are technological advances in making digital cameras, the efficient quantity of digital cameras will be thousand cameras and the equilibrium quantity will be thousand cameras.
A) less than 300; less than 300
B) greater than 300; less than 300
C) 300; greater than 300
D) greater than 300; greater than 300

Essays and Problem Solving (10 Marks)

1. Better-than-average weather brings a bumper tomato crop. The price of tomatoes falls from $6 to $4 a basket, and the quantity demanded increases from 200 to 400 baskets a day. Over this price range,
   a. What is the price elasticity of demand?
   b. Describe the demand for tomatoes.
2. The figure shows the demand for pens.
   a. Calculate the elasticity of demand for a rise in price from $2 to $4.
   b. At what prices is the elasticity of demand equal to 1, greater than 1, and less than 1?
3. If the quantity of fish demanded decreases by 5 percent when the price of fish rises by 10 percent, is the demand for fish elastic, inelastic, or unit elastic?
   Price
   (dollars per pound) Quantity demanded
   (millions of pounds per year)
   10 30
   15 25
   20 20
   25 15
4. The table gives the demand schedule for coffee.
   a. What happens to total revenue if the price of coffee rises from $10 to $20 per pound?
   b. What happens to total revenue if the price rises to $15 to $25 per pound?
   c. What is the price when total revenue at a maximum?
   d. What quantity of coffee will be sold at the price that answers part c?
   e. At an average price of $15 a pound, is the demand for coffee elastic or inelastic? Use the total revenue test to answer this question.
5. If a 10 percent fall in the price of beef increases the quantity of beef demanded by 20 percent and decreases the quantity of chicken demanded by 15 percent, calculate the cross elasticity of demand between beef and chicken.
6. Judy’s income has increased from $10,000 to $12,000. Judy increased her demand for concert tickets by 10 percent and decreased her demand for bus rides by 5 percent. Calculate Judy’s income elasticity of demand for (a) concert tickets and (b) bus rides.
7. The table gives the supply schedule for shoes. Calculate the elasticity of supply when
   a. The price raises from $125 to $135 a pair.
   b. The price is $125 a pair.

Price
(dollars per pair) Quantity supplied
(millions of pairs per year)
120 1,200
125 1,400
130 1,600
135 1,800

Econ 501: Managerial Economics

Project (20 marks):

Course outcomes K1, K2, K 3, S1, S2, C1, C2 and C3

One of the most important skills to learn in managerial economics is the ability to identify a good business.

1- Discuss at least four characteristics of a good business.

2- Identify and talk about at least four companies that you regard as having the characteristics of good business.

3- Discuss the relevance of marginal concepts to the performance of the chosen four companies.

4- How might an understanding of marginal concepts help to establish strategies to conserve as opposed to bankruptcy?