Answer all the given problems:
problem 1:
a) Innocent, a first year Business student wonders why one must consider scarcity and choice as fundamental problems in economics. Advise Innocent.
b) Scarcity leads to the economic choices. Give an illustration of an economic decision you made and what you gave up when you made your preference. Then think of a choice our country has made and what we might have given up in making that preference.
problem 2:
a) Sambambi a politician of ‘Let’s Enjoy Ourselves Party’ promises to rise funding for both the military program and education. Knowing about opportunity costs, what problem must you ask as a citizen?
b) Some economic systems work better with democracies and some work fine with authoritarian rule. Which political system best matches each economic system? describe why?
problem 3:
a) Describe how are prices set in a market economy?
b) What occurs to the demand for an item if the price goes down?
c) What occurs to the quantity demanded for an item if the price of the item goes up?
d) describe the difference between the real income effect and the substitution effect.
e) If the price of Coca-Cola suddenly rose, what would occur to the demand for Pepsi? describe why?
problem 4: Assume that the supply and demand curves for Honda Accord sedans in Lusaka are QS = 50i + 20P and D = 300i – 80 P.
a) Compute the equilibrium price and quantity for Honda cars from the above demand and supply equations.
b) Plot the demand and supply curves in a figure and point out the equilibrium point. Put quantity all along vertical and price all along the horizontal axis.
c) List out the four determinants of the demand and supply.
d) How does a shortage of tickets to a professional sports event like a football match find out the price of such tickets?
e) How are equilibrium prices determined?
f) In a free-market economy, how much and how frequently do you believe the government must intervene by setting price floors and ceilings? describe why?
problem 5: If goods are perfect complements, the effect of a price change comprises of solely of an income effect. Describe.