Lecturer: Mr.

Mohamed Azhar Hamza

Subject: ECON1101 Business Economics

Quiz 1

Student name: Jimale faduma ahmed

Student Id: 192921277
Question 1

a. If the farm uses its resources efficiently, what is the opportunity cost of an increase in chicken
production from 300 pounds to 500 pounds a year? Explain your answer. (5 marks)

When the farm increases production of chicken from 300 pounds to 500 pounds and it uses its resources
efficiently, the farm moves along its PPF and decreases the quantity of soybean produced from 400
bushels to 200 bushels, a decrease of 200 bushels. So the opportunity cost of increasing the production
of chicken from 300 pounds to 500 pounds is 200 bushels of soybean.

b. If the farm adopted a new technology, which allows it to use fewer resources to fatten
chickens, explain how the farm’s production possibilities will change. Explain how the
opportunity cost of producing a bushel of soybean will be affected. (5 marks)
The farm’s PPF goes outward, the maximum quantity of soybeans doesn’t change but the maximum
quantity of chicken increases. The opportunity cost of a bushel of soybeans increases because more
chicken has to be given up to produce more soybeans.
Question 2 (20 marks)

By using a suitable graph and a proper labelling, answer the following problems;

a. Consumers' income declines and, as a result, the demand for margarine increases. Is
margarine a normal or an inferior good? Explain. (10 marks)

b. Suppose that the number of companies selling computer software decreases. How does this
change affect the supply of computer software and the supply curve of computer software?
(10 marks)

a) Inferior good. An inferior is one whose demand falls when income increases and whose
demand increases when income falls, it is inversely related to income of consumers. Normal
good is one whose demand increase when income increases. This is wrong.

b) The supply of computer software falls and the supply curve will shift to the left decreases
QUESTION 3 (10 MARKS)
A recent study found that the demand and supply functions for Mangoes are as follows:
Qd = 22 – 2P
Qs = -18 + 3P
a) What are the equilibrium price and quantity of Mangoes? Draw a complete graph and label your
answer. (10 marks)

The equilibrium price is where the quantity demanded equals the quantity supplied. They are equal at
a quantity of 6 RM mangos s with the equilibrium price at the equilibrium quantity is 6 RM mangos.
b) A concerned Member of Parliament votes to impose a price floor RM1.75 above the Equilibrium
price. What is the new market price? How many Mangoes are sold? (4 marks)
Answer: Imposing a price floor (minimum price) at 1.75 above the equilibrium price makes the
minimum price at 10 per mangos. Since the price floor is above equilibrium price of 8 rm the market
price will be 10rm. At this price, 12 rm mangos are supplied and only 2rm mangos are demanded.
Thus, there is a surplus of 10 rm mangos. Only 2 rm mangos are sold.
c) IUKL students march on Putrajaya and demand a reduction in the price of Mangoes. An even more
concerned Member of Parliament votes to repeal the price floor and impose a price ceiling RM1
below the former price floor. What is the new market price? How many Mangoes are sold? Explain
your answer. (7 marks)
Answer: The price ceiling is the maximum market price which is 10-1= 9 However, the price ceiling
is above the equilibrium price of 8 rm so the price ceiling has no effect. Therefore, the market can
reach the equilibrium of supply and demand. At this point, the market price is 8 rm and 8 milion
mangos are sold in the market.