Managerial Economics *****Questions & Answers
Q1. Price rise at the Daily Mirror
Sly Bailey, the Trinity Mirror Chief Executive, sought to boost revenues of the Daily Mirror
in 2004 by increasing the price of the tabloid newspaper by 3p, from 32p to 35p. The move is
a sharp U-turn of the policy of Philip Graf, her predecessor, who tried to boost Daily Mirror
circulation by cutting the cover price, triggering a price war with its rivals The Sun and the
Daily Star. Ms. Bailey ended the price war as soon as she took over at Trinity Mirror in 2003.
The Daily Mirror will now cost 5p more than the The Sun, which is owned by News
International, parent company of the Times. It appears that The Sun has no immediate plans to
increase its price. The Daily Mirror last increases its price in September 1999 but the tabloid
newspaper market in the UK is fiercely competitive and it’s not clear what the effect on its
circulation will be.
Question:
1. What price elasticity of demand issues are raised in this case study?
(20 Marks)
Q2. Data response Questions:
The demand and supply schedules of good X are given below in the table below.
(20 Marks)
Px ($) Quantity demanded Quantity supplied
1 120 0
2 100 20
3 80 40
4 60 60
5 40 80
6 20 100
A) Define what is meant by the quantity demanded and the quantity supplied
B) What is the equilibrium price and quantity?
C) What would be the excess demand or supply if the price were:
i. $2
ii. $6
D) If there was an increase in income and the product was an inferior good what would
be the equilibrium price and quantity if 20 units less were demanded at each price?
Q3.
Price ($) Quantity demanded per week Quantity supplied per week
20 20 0
40 16 4
60 12 8
80 8 12
100 4 16
a) What is the price elasticity of demand when the price increases from $40 to $60?
b) What is the effect of a price increase from $40 to $60 on the total revenue?
c) Calculate the price elasticity of supply following a price increase from $60 to $80
(20 Marks)
Q4. The Government has various tools available to deal with the Market Failure. List at
least major 8 tools and substantiate your answers? (20 Marks)
Q5. What are the factors that causes an increase (rightward or upward shift) in demand
and supply? (Write down at least 8 points) (10 Marks)
