THE ZAMBIA CATHOLIC UNIVERSITY

FACULTY OF BUSINESS MANAGEMENT AND FINANCE

ECONOMICS DEPARTMENT
INTRODUCTION TO MICRO ECONOMICS
ASSIGNMENT 1

STUDENT: MAYBIN MUSONDA

COURSE CODE :EC100
STUDENT ID :D22004
LECTURER : LT. FRANCIS ,BROWN CHAFWA MUTALE
Q1A.
(i) . At the points B and C it represents the most efficient utilization of resources in
the production of erasers and pencils.A means they can produce but not at the
expected rate due to resource will not be used effectively. And D shows a shift which
means more production.
(ii)The shift in D can be attributed to three reasons which can be an advancement in
technology which speeds up the rate of production ,also resources ,when the resources
are their production can increase and finally advanced training can cause production
to increase with advancement in education levels of the stuff or in short human
capital.
B. The PPF is concave to the origin because the cost of production changes it is not
constant in order to create more of one product there is need to have less of the other
and allocate most resources to either the production of erasers as to pencils .therefore
trade off between the two is depicted by the concave in the PPF.
C. Opportunity cost means the actual cost of something in terms of opportunity
foregone in other terms it is the most valuable foregone alternative cost ,since
production resources are scarce therefore choosing one commodity over the other.
The government uses opportunity cost in development decision making processes lets
say the government uses it’s funds to construct a road the opportunity cost can either
be building a school or hospital.
D. Market economy increases economic efficiency in a sense that it provides freedom
to both the business entity and the consumer and encouraging economic growth.
It has limited government intervention and promotes competition which pushes
manufacturers to offer more innovative and high quality goods and services .
It sets up an established system of markets and prices .
It focuses more on privatization therefore not regulated by the government.
Q2.
A. The law of demand having a negative relationship between the price and the
quantity means that when the price of a product falls then the demand increases ,lets
say the price of bread in shoprite is k20 and the price falls to k10 that means the
demand for the commodity will arise .
B. The exceptions to the law of demand can be
Speculation for instance when there is a price hike in a commodity people will
speculate of a further rise in the price and will buy more of it at higher prices than
they did when the price was lower lets say edible oil has seen recently .
Conspicuous consumption is another exception as some people buy products or
property just to show their status in society ,by acquiring expensive possessions like
diamonds ,luxurious cars and many houses .
C. The two determinants of demand are the price of a commodity ,the income of the
consumer does not change ,if the income increases or decreases the law will not hold
good.
Taste of the product does not change this determines the commodities demand .
Determinants of supply can be the price of a product ,when the price goes up then the
supply is more and when the price goes down the supply will reduce .
Technology is another determinant of supply it affects supply by reducing the cost of
production leading to increased supply of goods .
D.(i)
Qd =Qs Qd = 120 -2 (30) Qs = 2p
120 -2p =2p Qd = 120 -60 Qs = 2( 30)
120 =2p +2p Qd = 60 Qs = 60
120=4p
120/4=4p/4
P=30
(ii). P -10 =2Qs +30 Qd = Qs
P= 2Qs +30 +10 120 -2p =2p + 40
P=2Qs +40 new price 120 - 40 =2p +2p
80/4 =4/4 =20 quantity

Qd =120 -2 (20) Qs = 2p +40

Qd = 120 - 40 Qs = 2(20) + 40
Qd = 80 Qs = 80

(iii) .TR = P* Qd
TR =20 * 80
TR = 1600 ZMW
Q3. (a)
(i) . price elasticity is the change in the in quantity over percentage change in price
e = dQ / Q
(p) dP /P

(ii). Price elasticity = % change in quantity / % change in price

e p = change in quantity /15
-2 = change in quantity\15
dq = -2* 15 = 30
dq = 30

(iii). E p = dq/ q
e p = 200/ 200
2.5 2
80 * 2/200
e p = 0.8
(iv). Helps the government to know whether a drop in price is better or a rise is better
in order to increase total revenue and sales.
Elasticity is used to measure and know the relationship between price and demand
and how they are affected by change.

The two uses of income elasticity is that it assists in understanding the responsiveness
of amount requested as income varies because of that it aids in forecasting the
quantity desired of any item or product throughout time.
The other thing is that income elasticity aids in predicting the stage of the trade cycle.

(b).
(I). government regulates prices to ensure that the price that is set is able to generate
revenue and discourage demand for demand goods examples are foods or farm
produce which must benefit the farmer and also add to economic development by way
of taxes.
The other reason is to stabilize the prices of goods on the market in order to avoid
fluctuating in the price of goods and services for instance you find a situation where
one day you buy bread at K20 and the other day the price drops to K15 again in a
short period it raises to K25. The government regulates to ensue that the market price
is stable and and fluctuating.
(ii). Maximum price is when the government wishes to keep prices from rising prices
from raising above a specified threshold. If the maximum price is set below the price
equilibrium there will be a decline in prices, for example the government wishes to
use maximum price to cut down on the cost of renting a house or impose it on
foodstuffs which they want to make affordable.
Minimum price is when the government does not allow the prices to go down below a
certain level this might cause an increase in prices for instance on alcohol the
government sets a minimum price which legally prohibits the firm from selling below
the minimum.
(iii).
Q4.
(ii).