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Homework answers / question archive / 1
1.Suppose E[X] = 2 and EY] =0 as in part 1. Can we calculate E[XY]? explain why or why not?
2.The economy of Wekare produces cars in a perfectly competitive labour market. a) Using diagrams illustrate and explain the impact of a fall in the price of cars on the demand and supply of labour and real wages for the car market in Wekare. (1/2 marks) b) Assume that Wekare, cares about its workers in the car industry and decides to implement minimum wages in the car industry which are set above the new market clearing wage rate. Illustrate and explain the implications of this decision. (1 72 marks) c) Outline two costs of high unemployment? (2 marks)
3.Answer questions 4, and 5 from Table 1 Table 1: Quantity demanded and supplied for the "Boost Juice" Price (S) 4 6 8 10 12 14 Quantity demanded 2,000 1,600 1,200 800 400 0 Quantity supplied 1,500 1,600 1,700 1,800 11,900 2,000 4. Draw the demand and supply curves for "Boost Juice". What are the equilibrium price and quantity of drinks? Explain why this is the equilibrium point. Label all axis and curves. (1 mark) 5. Explain, using the graph in question 4 above, what would happen if the price was initially $4? Identify any surplus or shortage on the graph above. Label all axis and curves.
1.Answer) Since the product of the expected value of variable x and variable Y is coming out to be zero. We can't say if the events are independent or not. In such a case we can't determine the value of E(XY).
Law of independence E(XY)= E(X)E(Y)
Since E(X)E(Y) is zero, we can't determine E(XY).
2.a) Fall in price of car will reduce net profit of producers which induce them to hire less of the labor which shift demand curve of labor to its left which reduce the real wage rate from W to W1 as well as labor hired from E to E1.
b) Wage rate (Wf) above equilibrium wage of Ew will result in unemployment because there is supply of Ws and demand of Wd at wage rate of Wf.
c) Two cost of high unemployment are:
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3.
Ans) Equilibrium is a point where quantity demanded is equal to quantity supplied. On graph, it is a point where demand and supply curve intersect. In given question, $6 is equilibrium price because at this point quantity demanded is equal to quantity supplied (1600 units.)
When price is below equilibrium price, there is shortage i.e quantity demanded exceeds quantity supplied and there is an upward pressure on the price. Therefore, at $4, there will shortage and there will be an upward pressure on the price.
Shortage = Qd-Qs = 2,000 - 1500 = 500 units
PLEASE SEE THE ATTACHED FILE.
