QUESTION 1 [30 marks] a. Tebogo enjoys her coffee with a few cookies. Assume the price...

QUESTION 1 [30 marks]

a. Tebogo enjoys her coffee with a few cookies. Assume the price of cookies decreased, how would this affect Tebogo’s demand for coffee? Use a relevant diagram to support your answer.

b. With the use of a diagram, distinguish between change in demand and change in quantity demanded. c. Trade unions always try and get a much higher wage rate than what the market is willing to pay. Using and appropriate explain what will likely happen in the labour market if the wage rate demanded by a trade union is above the market equilibrium wage.

d. Calculate the following different elasticities:

i. A price increase from P2 to P10 causes quantity demanded to change from 80 units to 30 units. Calculate and interpret price elasticity of demand.

ii. Income increase by 10% results in quantity demanded increases by 5%. Calculate and interpret income elasticity of demand.

iii. Quantity of good B increases by 50% because of an increase in price of good A by 40%. Calculate and interpret cross elasticity of demand.

iv. How would a firm manipulate the prices of goods in di-iii in order to maximize revenue and profits?

Expert Solution

Answer,

Rahul Sunny answered 4 months ago

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