OUM BUSINESS SCHOOL ASSIGNMENT SUBMISSION AND ASSESSMENT _________________________________________________________________________ BMME5103 MANAGERIAL ECONOMICS Due Date: 27th March, 2016 _______________________________________________________________

OUM BUSINESS SCHOOL

ASSIGNMENT SUBMISSION AND ASSESSMENT _________________________________________________________________________
BMME5103
MANAGERIAL ECONOMICS
Due Date: 27th March, 2016
_________________________________________________________________________
INSTRUCTIONS TO STUDENTS
1. This assignment contains question that is set in English.
2. Answer in English only.
3. Your assignment should be typed using 12 point Times New Roman font and 1.5 line spacing.
4. You must submit your hardcopy assignment to your Facilitator according to the due date.
5. Your assignment should be prepared individually. You should not copy another person’s assignment. You should also not plagiarise another person’s work as your own.

EVALUATION This assignment accounts for 30% of the total marks for the course.






Question 1
a. “As the price of oranges rises, the demand for oranges falls, ceteris paribus.” Explain.
[4 marks]
b. “The price of a bushel of wheat was $3.00 last month and $2.50 today. The demand curve for wheat must have shifted leftward between last month and today.” Discuss.
[6 marks]
c. Some goods are bought largely because they have ‘snob appeal.’ For example, the residents of Beverly Hills gain prestige by buying expensive items. In fact, they would not buy some items unless they are expensive. The law of demand, which holds that people buy more at lower prices than at higher prices, obviously does not hold for the residents of Beverly Hills. The following rules apply in Beverly Hills: high prices buy; low prices, don’t buy.” Do you agree? Discuss.
[7 marks]
[Total: 17 Marks]
Question 2
a. Consider public policy aimed at smoking; i. Studies indicate that the price elasticity of demand for cigarettes is about 0.4. If a pack of cigarettes currently costs $2 and the government wants to reduce smoking by 20 percent, by how much should it increase the price?
[4 marks]
b. Studies also find that teenagers have higher price elasticity than do adults. Why might this be true? Explain.
[4 marks]
c. Suppose that business travelers and vacationers have the following demand for airline tickets from New York to Boston:
Price Quantity Demanded
(Business travelers) Quantity Demanded
(Vacationers)
$150 2,100 tickets 1000 tickets
$200 2,000 tickets 800 tickets
$250 1,900 tickets 600 tickets
$300 1,800 tickets 400 tickets

i. As the price of tickets rises from $200 and $250, what is the price elasticity of demand for
1. business travelers
2. Vacationers?
[6 marks]
d. Why might vacationers have a different elasticity from business travelers?
[3 marks]
[Total: 17 Marks]
Question 3
The Figure below shows the movements of the real price of oil over the period of 1990-2010. It represents four episodes (Gulf War, OPEC III, Iraq War and Indian, Chinese Demand) when oil prices hiked.

(a) Draw four diagrams for 4 episodes starting with an initial price and quantity for each episode.
(b) Then for each episode show whether demand or supply or both changed. Explain why demand, supply or both changed.
(c) Finally explain in a line or two and mark the new equilibrium price and quantity for each episode.
[Total 16 Marks]