Other
UJ Economics 1A Assignment 2
- Course
- Economics 1A (ECO01A1)
- Institution
- University Of Johannesburg (UJ)
UJ Economics 1A Assignment 2 question and answers
[Show more]
Content preview
Economics 1A Assignment 2Question 1 P
P
P2
P1
D2
0 0 D1
Q Q
Q2 Q1
Sugar
Molasses
-If the price of molasses increases, the quantity demanded for sugar will, ceteris paribus, decrease and
the demand for sugar will increase at every price level. The demand curve for sugar will shift to the right.
Question 2
2. Clothes (elasticity coefficient greater than 1) = 1,25, Cigarette (elasticity coefficient less than 1) =-0,87
2.1 Cigarettes are relatively inelastic, the change in the demand of a product is less than that of change
in its price.
Clothes are relatively elastic, the percentage change in the quantity demanded of the product is greater
than the percentage in its price.
2.2. Inelastic Goods
• Large price changes induce only small changes in the quantity demanded.
• There are no close substitutes for cigarettes.
• They are addictive (cigarettes)
Elastic Goods
• The percentage change in the quantity demanded of clothes is greater than the percentage in its
price.
• Clothes are bought frequently.
• There are many substitutes for clothes, consumers have many alternatives.
, P P
2.3
16
8
12
6
P
P Q
80 100 Q 84 88
Elastic Demand for Inelastic demand for
clothes Cigarettes
2.4. With clothes (elastic goods), the company can cut its price, the percentage will drop and that will
result in an even larger percentage increase in the quantity sold, thus raising total revenue.
If the price for Cigarettes is increased the demand does not change, the Total revenue increases due to
the higher price and static quantity demanded. This means that firms that deal with cigarette can
increase prices, selling a little less but making higher revenues.
2.5. Excise/Sin tax- as excise tax increases, the price of cigarette also increases.
Trade discounts by manufacturers- cigarette manufacturers use discounts and other promotions to
counteract the effects of these tax increases.
Mark-up- state cigarette minimum price laws typically require a minimum percentage of markup to be
added to the retail price.
Minimum retail price- the state minimum prices prohibit manufacturers to give trade discounts or
reduce prices.
Question 3
Number of Coca Colas Marginal Utility Total Utility
consumed
1 30 30
2 20 50
3 15 65
5 16 81
8 6 87
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through EFT, credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying this summary from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller zaneleruthmadlazi. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy this summary for R133,00. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
52355 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy summaries for 14 years now