Micro8 Essay Example | Topics and Well Written Essays - 1000 words

Micro8 - Essay Example e Americas Cup sailboat races increases interest in sailing, it will have two effects: raising the equilibrium quantity and raising the price of sailboats. There will be a shift towards the right for the demand curve, driving price and quantity. b) If producers expect the price of sailboats to rise next year, there will be two effects: the lowering quantity supplied and raising the price of the sales boat. The will be a leftward shift of the supply curve. c) If the cost of fiberglass used in the production of sailboats increases the supply of the sailboats will lower and the price will increase. The supply curve shifts rightward driving the price and quantity as indicated in the graph. a) Price elasticity of demand for food is higher in Tanzania than United States because of the difference in average income. The larger the amount of income spent on food purchases, the larger is the price elasticity of demand for food (Parkin, 2007, p.93). The average income in Tanzania is very low when compared to that of United States, implying that the proportion of income spent of food is large. This high price elasticity imply that much of the income in Tanzania is spent on food purchases while only a small amount of income is spent on food in US. Note that the high price elasticity does not mean that food purchases in Tanzania are more compared to US, but only indicate income spending on food. b) Tax on gasoline will provide more tax revenue than tax on restaurant meals. This is because gasoline does not have really close substitutes like restaurant meals. Despite the price changes in gasoline, automobiles must drive on the product. However, if restaurant meals became expensive, people may opt to cook by themselves and evade the high prices of restaurant meals. Therefore, tax revenue which is dependent on the quantity of goods sold and tax will be higher for gasoline than restaurant meals. a) Consumer surplus at the competitive equilibrium = the area above the price