1 1. Suppose a consumer started consuming 12 kg of butter when his income increased to Birr 2000 - which he used to consume only 8 kg when his income was Birr 1600. Then find A) Consumer's income elasticity of demand by using arc method? B) Identify types of Commodity? C) Identify types of income elasticity? D) Interpret your result! 2. Suppose the price of coffee rises from Birr 100 per kg to Birr 120 per kg. As a result, consumer demand for tea rises from 20 kg to 30 kg. Then find:= A. Cross elasticity of demand for tea, Give the economic meaning for your output/result B. What type of good and What type of elasticity? 3. Given individual demand Qd = 50 - P, and individual supply P = Qs +5 and if there were 2 potential buyers and 4 sellers in the market, then: A. Find the market equilibrium price and quantity? B. What would be the state of the market if market price is fixed at Birr 25 per unit? C. What would be the state of the market if market price is fixed at Birr 18 per unit? D. Show the market equilibrium and disequilibrium graphically! E. Calculate and interpret price elasticity of demand and supply at the equilibrium point. 4. Given MUX = X, MUY = 4Y, Price of X is 3 Birr per unit and price of Y is also 3 Birr per unit. If the income of the consumer is 1200 Birr, find the amounts of X and Y that the consumer chooses to consume so as to maximize his utility and Explain the interpretation of MRSxy result! 5. A cloth producing firm in a perfectly competitive market has the following short-run total cost function: TC = 6000 + 4000-200² + Q³. If the prevailing market price is birr 250 per unit of cloth, A. Should the firm produce at this price in the short-run? B. If the market price is birr 300 per unit, what will be the profit (loss) of the firm at equilibrium? Should the firm continue to produce or not? C. Calculate the shut-down price of this firm? D. Graphically derive the supply function of the firm. 1| Page CS Cand
