Demand of a product is usually very sensitive to economic variables,

Answer the below questions. Each question carry 10 marks.



50 Marks


Show in a diagram the effect on the demand curve, the supply curve, the equilibrium price, and the equilibrium quantity of each of the following events.

The market for newspapers in your town

Case 1: The salaries of journalists go up.

Case 2: There is a big news event in your town, which is reported in the newspapers.

The market for St. Louis Rams (a professional football team) cotton T-shirts Case 1: The Rams win the Super Bowl competition.

Case 2: The price of cotton increases.

The market for bagels

Case 1: People realize how fattening bagels are.

Case 2: People have less time to make themselves a cooked breakfast.

The market for the Krugman and Wells economics textbook

Case 1: Your professor makes it required reading for all of his or her students. Case 2: Printing costs for textbooks are lowered by the use of synthetic paper.

Explain the features of Perfect Competition with examples.


Explain graphically, at what point the firm should stop hiring worker in a perfect competitive market form. Also, list down some of the characteristics of the market form.


Demand of a product is usually very sensitive to economic variables, such as the prices and consumer income. This responsiveness of demand is elasticity. Compute elasticity in the below scenarios:

Yesterday, the price of envelopes was $3 a box, and Jacky was willing to buy 10 boxes. Today, the price has gone up to $3.75 a box, and Jacky is now willing to buy 8 boxes. Is Jacky’s demand for envelopes elastic or inelastic? What is Jacky’s elasticity of demand?

Katy advertises to sell cookies for $4 a dozen. She sells 50 dozen, and decides that she can charge more. She raises the price to $6 a dozen and sells 40 dozen. What is the elasticity of demand? Assuming that the elasticity of demand is constant, how many would she sell if the price were $10 a box?



A market failure occurs when the supply of a good or service is insufficient to meet demand. This results in an inefficient distribution of resources among market participants. Hence government need to intervene to bring efficiencies. Explain any four tools available for government interventions to deal with the market failures with suitable examples.


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