# Microeconomics Coursework Portfolio Questions

Microeconomics Coursework Portfolio Questions Order Instructions: This is my microeconomics coursework portfolio questions.

Where we have to answer the questions correctly. This is a total of 40% of my final grade so please make sure the answers are direct and get right to the point. It doesn’t have to be in an essay format, simply place the answer below the question.

## Microeconomics Coursework Portfolio Questions Sample Answer

Microeconomics Portfolio Questions

Seminar 2

1. A simple supply and demand schedule
2. Plot the demand and supply curves on excel or a graph and identify the equilibrium price and quantity

The equilibrium price is £14 and the equilibrium quantity is 100

1. Explain why the equilibrium price is a stable one;

The equilibrium price is stable because the quantity demanded is relatively equal to the quantity supplied, which significantly minimizes price fluctuations.

1. Assuming the potato is an inferior good; analyze the effect of a rise in national income on the equilibrium price and quantity of potatoes. Now analyze the effect on the potato market of a plague of carbohydrate-loving potato locusts.

Since potato is an inferior good, a rise in national income will shift the equilibrium price and quantity of potatoes to the left because the increased purchasing power will make consumers to move to other superior alternatives thereby decreasing the demand for potatoes as well as the prices. On the other hand, a plague of carbohydrate-loving potato locusts will shift the equilibrium price and quantity of potatoes to the right because it will result to a decline in the supply of potatoes to the market, which will, in turn, increase the demand for the potatoes and consequently an increase in the prices.

1. Use the supply and demand model to discuss the economic effects of :
2. Setting minimum wages for low paid workers;

Setting minimum wages for low paid workers results in increased labor costs, this subsequently leads to increased good prices and consequently a decrease in demand.

1. Setting maximum rents for private accommodation, and This ensures that the prices for private accommodation are regulated and always at or below maximum margin, which increases demand for the accommodation.
1. Levying an indirect tax on the sale of a product.

Levying an indirect tax increases the price of a product subsequently leading to decreased demand.

1. Giving a production subsidy

Production subsidy increases quantity supplied in turn leading to a reduction in the prices of products, but often without losses to producers because of reduced cost of production attributable to the subsidy.

3.**portfolio question** Explain carefully what is meant by consumer surplus. What happens to consumer surplus when price increases?

Consumer surplus is referred to as the economic measure used in determining consumer satisfaction, and its calculation is done through analysis of the difference between the price a consumer is willing to pay for a service or good relative to the market price of that service or good. This means that consumer surplus is only felt when there is a willingness of the consumer to pay more for a certain service or product that its prevailing market price. An increase in the market price of a product or service either reduces consumer surplus or when the increase in price is significant the consumer is lost altogether.

4**portfolio question** Carefully explain the meaning, derivation, and properties of indifference curves and budget lines. Use indifference analysis to show how a rational consumer maximizes his/her utility from a given income.

Indifference curves are a method used to illustrate the tastes and preferences of consumers, while a budget line is used to indicate the extent of income allocated by a consumer to goods and services. Derivation of indifference curves is based on preference and tastes of consumers, wherein the figure is shown below in which point a is preferable to point c, and point b is preferable to point a. However, when a is preferable to d but is preferable to a, then there is movement from point d toe, and it is advisable to align to more preferred combinations rather than less preferred ones. Thus, by doing so we connect all the points to obtain the indifference curves illustrated in the figure below:

The indifference curves for pens and books are derived by taking any combinations that fall along curve I1 for pens and books yielding similar level of utility as any other combination on that curve. This means that the consumer is indifferent among them, and through extension, any curve I2 combinations will be preferable to any curve I1 combinations as shown below:

The three main properties of indifference curves include: 1) higher indifference curves are a representation of higher satisfaction levels; 2) there is a negative sloping of indifference curves and they tend to bow towards the origin; and 3) it is impossible for indifference curves to cross.

A rational consumer can use indifference curves to maximize utility by consuming at the point where her budget line is tangent to an indifference curve. At this point, the consumer chooses to point a, where her budget line just touches indifference curve I1.

5**portfolio question** Derive the price consumption curve. Why does a change in the price of good affect the consumption of another good?

From the budget line and indifference curves shown below, it is possible to derive the price consumption curve.

For instance, changes in the price of pens shift the budget line of consumers from B1P1 to B1P2 in the above figure, leading changes in the consumer equilibrium point from a to c. As a result, a plot of the demand curve for pens gives the equilibrium quantity of pens at various prices. This is the price consumption curve and is illustrated in the figure below:

A change in the price of good affects the consumption of another good if they are substitutes, whereby an increase in the price of one substitute increases consumption of its replacement while a decrease in the price of a substitute product decreases the consumption of its replacement.

Seminar 5

1. The output of good X
2. Fill the gaps
 Number of workers Total Product Average Productivity of Labour Marginal Productivity of Labour 1 200 200 200 2 600 300 400 3 960 320 360 4 1120 280 160 5 1200 240 80 6 1200 200 0
1. A plot of the TP, AP & MP
2. Firm’s cost of production
3. Fill the gaps
 Quantity Produced Total Cost Average Total Cost Average Variable Cost Average Fixed Cost Marginal Cost 1 10 10 2 8 6 2 16 8 4 4 2 3 18 6 3.33 2.67 10 4 28 7 5 2 17 5 45 15 13.4 1.6 21 6 66 11 9.67 1.33 11
1. A plot of the data

All the costs except the total cost tend to increase within productivity, but at higher productivity levels they begin to decrease. All average costs tend to behave the same across different productivity levels.

1. What do we mean by Scale Economies? Why is a firm’s long-run average cost curve sometimes taken to be U-shaped?

Scale Economies are referred to as the cost benefits that ensue from increased production output in a firm and often result in a reduction in variable costs per unit due to operational synergies and efficiencies. The reason why a firm’s long-run average cost curve is sometimes taken to be U-shaped is because initially, the costs are high then they start to gradually to gradually up to a point where they no longer reduce and then begin to rise up to to a point they are equal to the beginning costs to form a U-shape.

Seminar 6

1. Define perfect competition. How realistic do you consider the assumptions behind the perfect competition model to be?

Perfect competition is a market structure where no particular participant(s) are large enough to assume the power of setting the price for a product that is homogeneous. The assumptions behind the perfect competition model are not realistic because it is usually very hard to find perfect knowledge among consumers as well as perfect entry and exit from industry freedom.

1. Demonstrate, with the use of appropriate diagrams, the profit-maximizing equilibrium of a perfectly competitive firm.

In this scenario, the firm has to concentrate on market supply and demand curves to establish its appropriate mix because it has little influence on the market. This is achievable through the diagrams shown below:

1. Perfectly competitive firms can never make supernormal profits. Is this true?

This is not true because in short-run perfectly competitive firms can make supernormal profits before many other firms are attracted into the industry and profits begin declining.

Seminar 7

1. What do you understand by ‘monopoly’? Show how a monopolist sets a profit-maximizing output, and explain why this equilibrium may be a stable one in more than the short-run.

This is a market structure where a single company or group controls nearly all or all the market for a certain type of service or product. Monopolist sets a profit-maximizing output through the equilibrium shown below:

1. Explain, giving examples, the circumstance under which price discrimination is likely to occur.

The first circumstance is when consumer profit is transferred to producers by charging varied prices from different groups for other purposes other than transportation costs. For example, higher telephone charges during hours of business since the need to use the phone by businessmen is high during business hours and the cost is not a priority, while the same phone charges are low at evening so that ordinary people are also encouraged to make calls.

1. ‘Monopoly is always against the public interest and should be curbed by the state.’ Do you agree?

I do not agree with this since due to the market situation’s complexity, it is not possible for monopolies to always be against the public interest despite its few negative sides.

1. Discuss the principal features of the ‘kinked demand curve’ model of oligopoly.

The kinked demand curve model is based on the assumption that there is a potential for business products facing a dual demand curve on basis of the possible reactions of other firms to variations in the business prices or any other variable. The principal features are that: significant price increases without other companies following suit leads to significant substitution and reduction in prices alongside reduction by other companies may not produce considerable effects.

2.**portfolio question** Discuss the meaning importance of a) income elasticity of demand, and b) cross elasticity of demand

1. Income elasticity of demand describes the quantity demanded where luxury goods are considered, which are highly sensitive to income changes. Negative income elasticity of demand is observed for inferior goods where the quantity demanded falls with rising income.
2. Cross elasticity of demand is used in measuring the quantity demanded responsiveness with regards to a particular good if changes in price occur in another good. This is important in determining the effects of substitutes on the market.

3.**portfolio question** Examine the effect of taxing smoking on the equilibrium price and quantity of cigarettes? Why is the price elasticity of demand a useful concept in this case? Is it true that government tax smoking solely in order to improve our health?

Taxing smoking does not have a significant shift or movement on the equilibrium price and quantity of cigarettes because its demand is not as elastic as those of other products. However, some extent of a reduction in demanded quantity is experienced since high prices discourage new smokers, relapse of those had quit smoking, and also some smokers quit. The usefulness of elasticity of demand is to determine the quantities of cigarettes to be produced per stipulated period of time and also set prices for the cigarettes. It is not really true that government tax smoking solely in order to improve our health, but also to raise revenues to fund its activities.

2.**portfolio question** What might be the main determinants of the market demand of the following products?

1. larger beer; b. holidays abroad; c. sports cars; and d. spaghetti

The main market demand determinants for the above products include the price of the commodity per unit, tastes and preferences of a household or individual, as well as the prices and substitutes nature.

3**portfolio question** What is the key difference between a change in price and a change in any other factor affecting demand on the demand curve?

The key difference is that a change in price results to a movement or shift along the demand curve.

## Microeconomics Coursework Portfolio Questions References

Nicholson, W. (2011). Microeconomic Theory: Basic Principles and Extensions, (8th ed.). New York, NY: South-Western College Publishers.

Perloff, J. M. (2007). Microeconomics: Theory and Applications with Calculus. New York, NY: Pearson – Addison Wesley.

Pindyck, R. S., & Rubinfeld, D. L. (2008). Microeconomics, (7th ed.). New York, NY: Prentice Hall.

Ruffin, R.  J., & Gregory, P. R. (2010). Principles of Microeconomics, (7th ed.). New York, NY: Addison Wesley.

Varian, H. R. (2009). Intermediate Microeconomics: A Modern Approach, (8th ed.). New York, NY: W. W. Norton & Company.

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