Chapter 3
Essay questions
- Explain why the low-cost airlines benefited from the terrorist attacks of 11 September 2001 whereas the traditional flag-carriers suffered?
- “Congestion on the roads is a positive feature of the modern economy.” - Discuss.
Exercises
1. The quantities demanded and supplied of a local bus service are given by the following equations:
Qd = 5 - P/2
Qs = P/4 - 0.5
(a) What is the equation of the inverse demand curve?
(b) What is the market-clearing price? (c) How many bus tickets are traded at this price?
(d) What is the value of consumer surplus at this equilibrium?
(e) What is the value of producer surplus at this equilibrium?
Due to an improvement in the reliability of the bus service (which does not affect the costs of production), the inverse demand curve shifts so that it has the equation:
P = 12 - 2Qd
(f) What is the new equilibrium price and quantity? Draw a diagram to illustrate this.
(g) Due to the shift in demand, how has market welfare changed?
(h) What is the price elasticity of supply as price falls from £4 to £3?
Multiple Choice Questions
