PRINCIPLES OF ECONOMICS – ASSIGNMENT ONE
Instructions

Answer all the questions below and show your working

Should be typed (if handwritten, the document should be scanned)
Due date: Before our first Class/ At the start of our first class
QUESTION ONE
i.
The price of a commodity was initially K10, 000 and 150 units were bought per day. When
the price fell to K 5, 000 the units being bought increased to 200 per day. What is the price
elasticity of demand for the price changes given?
ii.
Suppose the consumer is consuming apples and oranges. Price of an apple is $5 and the
price of an orange is $40. The demand for apples is 56 units while the demand for oranges
is 87 units. The consumer has an income of $200. Suppose the consumer's income
increased to $300 while the demand for oranges has decreases to 70 units and the price of
apple has decreased to $2.
Calculate the income elasticity of demand for oranges.
iii.
A 5% increase in income leads to an increase in the quantity demanded from 24 units per
week to 27 units per week. What is the income elasticity of demand?
iv.
A company supplies 20 units of a particular product per month at a price of K24. If the
price elasticity of supply is 4 then how many units would the company supply at a price of
K30?
v.
A rise in the price of product Y from K50 to K54 has resulted in the demand for product X
increasing from 100 to 104 units per month. What is the cross elasticity of demand?
QUESTION TWO
The demand and supply functions of a good are given by
𝑃 = −2𝑄𝐷 + 50
1
𝑃 = 𝑄𝑠 + 25
2
(a) Determine the equilibrium price and quantity.
(b) Determine the effect on the market equilibrium if the government decides to impose a fixed
tax of K5 on each good.
Hint: Establish the new equilibrium price and quantity
QUESTION THREE
From the following data of a firm:
Output
Total Cost
Price
0
40
9
10
70
8
20
100
7
30
140
6
40
180
5
50
200
4
(i) You are required to calculate at each level of output
a) The firm’s total revenue
b) The firm’s marginal revenue and average revenue
c) The firm’s fixed costs
d) The firm’s marginal cost
e) The firm’s average cost
f) The firm’s profit levels
(ii) At what level of output will the firm aim to produce, state the reason.
(iii) Explain the relationship between average revenue and price