# Business finance – economics assignment 2

**Assignment#2**

**Ch** **4-Chapter-** **Markets in Action**

**Name:**

**ID:**

**Answer the below questions-**

**Q.** **What is efficiency?**

**Answer-**

**Q.** **What is the rational amount of any activity to undertake?**

**Answer-**

**Q.** **Why is a competitive market efficient?**

**Answer-**

**Q.** **How does the demand curve show marginal benefits?**

**Answer-**

**Q.** **The does the supply curve show marginal costs?**

**Answer-**

**Q.** **When is a product** **underproduced** **and when is it overproduced?**

**Answer**

**Q.** **What is market failure?**

**Answer-**

**Q. What are sources** **of market failure?**

**Answer-**

**Q.** **What is an externality?**

**Answer-**

**Q. What is a** **negative externality**

**Answer-**

**Q.** **What is a public good?**

**Answer-**

**Q.** **What are ways government tries to correct for market failures?**

**Answer:**

**Q.** **What are two types** **of price controls?**

**Answer:**

**Ch** **5 Elasticity**

Q-1-From the data in __Table 5.5__ about demand for smart phones, calculate the price elasticity of demand from: point B to point C, point D to point E, and point G to point H. Classify the elasticity at each point as elastic, inelastic, or unit elastic.

**Points**

**P**

**Q**

A

60

3,000

B

70

2,800

C

80

2,600

D

90

2,400

E

100

2,200

F

110

2,000

G

120

1,800

H

130

1,600

Table 5.5

Answer

.

Q-2-From the data in __Table 5.6__ about supply of alarm clocks, calculate the price elasticity of supply from: point J to point K, point L to point M, and point N to point P. Classify the elasticity at each point as elastic, inelastic, or unit elastic.

**Point**

**Price**

**Quantity Supplied**

J

$8

50

K

$9

70

L

$10

80

M

$11

88

N

$12

95

P

$13

100

Table 5.6

Answer

Q-3-The federal government decides to require that automobile manufacturers install new anti-pollution equipment that costs $2,000 per car. Under what conditions can carmakers pass almost all of this cost along to car buyers? Under what conditions can carmakers pass very little of this cost along to car buyers?

Q-4-The average annual income rises from $25,000 to $38,000, and the quantity of bread consumed in a year by the average person falls from 30 loaves to 22 loaves. What is the income elasticity of bread consumption? Is bread a normal or an inferior good?

Q-5-What is the formula for calculating elasticity?

Answer

Q-6- What is the price elasticity of demand? Can you explain it in your own words?

Answer

Q-7-What is the price elasticity of supply? Can you explain it in your own words?

Answer.

Q-8-. What is the formula for the income elasticity of demand?

Answer.

Q-9-What is the formula for the cross-price elasticity of demand?

Answer.

Q-10-What is the formula for the wage elasticity of labor supply?

Answer.

Q-11-What is the formula for elasticity of savings with respect to interest rates?

Answer

Q-12-The equation for a demand curve is P = 48 – 3Q. What is the elasticity in moving from a quantity of 5 to a quantity of 6?

Answer

Q-13-The equation for a demand curve is P = 2/Q. What is the elasticity of demand as price falls from 5 to 4? What is the elasticity of demand as the price falls from 9 to 8? Would you expect these answers to be the same?

Answer

Q-14-The equation for a supply curve is 4P = Q. What is the elasticity of supply as price rises from 3 to 4? What is the elasticity of supply as the price rises from 7 to 8? Would you expect these answers to be the same?

Answer.

Q-15-The equation for a supply curve is P = 3Q – 8. What is the elasticity in moving from a price of 4 to a price of 7?

Answer-