Question

Question3 (a) The Malaysian government controls prices during festivities. Why do they do that? [15 marks] (b) Based on your answer in (a), do these price controls work? Suggest ways [15 marks] to control price. Question 4 The table below depicts the price and quantity of two products; coffee and cocoa. Cocoa Quantity (units) 50 70 Coffee Price (RM) 20 30 Quantity (units) 20 15 (a) Calculate the price elasticity of demand using the midpoint formula. [5 marks] If the price of coffee increases, what will happen to the total revenue of 8 marks] (b) coffee? Explain. Calculate the cross elasticity of demand between coffee and cocoa. Based on the answer, explain the relationship between them. (c) 7 marks

Answer 1

[As HOMEWORKLIB’s policy and guideline, the first-question with all parts is answered below:]

Q3)

a.

Price control is the process of market manipulation. It helps either suppliers or demanders or both. In festive seasons demand become very high, because people are having excess money in their hands, which increases their willingness to purchase, causing increasing demand; but in the short-run supply can’t be increased because of scarcity of resources, which creates inflation. Therefore, price control becomes necessary there so that demand could be restricted. Government takes “price floor” as price control here.

b.

Yes; it works. Once demand is restricted, inflation is under control. Inflation creates bad impact on country’s economy – it increases exchange rate since currency is devalued.

Ways are as below (2 ways):

Price floor: This is the price of commodity set by the government above the market equilibrium price. Such price gives assistant to the suppliers who are otherwise selling goods at lower price.

Price ceiling: This is the price lower the market equilibrium price. It consumers who are otherwise used to purchase goods at higher price.