Q1. You are informed that the equilibrium in the market for potatoes is a quantity of 5000 bags per day and the equilibrium price is $10 per bag.
a) If the government imposes a maximum price (price ceiling) of $8 per bags of potatoes. Explain the effect of this measure on the market for potatoes.
b) You are informed that the government imposed this ceiling price to encourage people to consume more potatoes for better health. Explain whether or not, the government will attain its desired objective. Use an appropriate diagram to illustrate your answer.
c) Do you think that the offer of a subsidy by the government to the producers of potatoes may help the government to achieve their objective more successfully? Explain your answer.
Q2. Explain with an appropriate diagram the merits and demerits of imposing minimum wages if a government wishes to assist less skilled people to find employment.
Q3. The market for a good has a demand curve given by:
P = 100 - 2Q
And a supply curve given by: P = 10 + Q
a) Find the equilibrium price and quantity in the market.
b) Suppose the government imposes a sales tax of $12 on each unit of this good. Calculate the new equilibrium price and quantity in the market.
c) Explain showing your workings, the proportions in which the tax is shared by the consumers and sellers, and the reason for the tax been shared by the consumers and sellers as calculated by you.
d) Calculate the loss in consumer surplus and producer surplus, as well as the deadweight loss as a result of the above tax.
Q4. Explain briefly the main features of a perfectly competitive market, and why it is considered to be better than a monopoly for consumers in a country.
Q5. Explain clearly, using appropriate diagrams why economists believe that the monopolistically competitive market model offers a less satisfactory outcome than a perfectly competitive market both in respect of the consumers welfare and optimal allocation of resources.
Q6. Explain with an appropriate diagram why firms operating in an oligopolistic markets are reluctant to compete with prices and instead use non-price competitive methods to increase their market shares.