The Copperbelt University
School of Humanities and Social Sciences
Department of Economics
BS 110/BSP/110: Principles of Economics
13 February 2023
1. Given the scenarios, analyse and explain each of the following using supply and
demand concepts and graphs clearly showing the change in equilibrium quantity and
price for each case.
a) The Zambian Daily Mail reported an increase in the number of layer chickens due
to technological advances. Layers are valuable to farmers because they produce
eggs. However, farmers are not happy despite having more layer chickens that
produce eggs. Explain why.
b) Suppose the drought conditions in the Southern Province of Zambia increase the
costs of irrigation. Explain how this turnout affects the market for vegetables
grown in that region.
c) The slowdown of the COVID-19 allowed for the lifting of lockdown rules and
allowed people to go back to their normal lives. This has led to more people going
to the movie theatres rather than staying home to watch movies. Show how this change
in behaviour affects the market for microwave popcorn.
d) The Zambian government recently announced that the importation of mining
equipment will attract no taxes. Suppose that the mining of coal requires the use
of these mining equipment. Use a well labelled graph and show the changes in
equilibrium for the coal market with reduced importation costs.
2. Suppose that the market demand for cassava is given by and that the
market supply is given by where and are the market quantity
demand and supply of cassava respectively, and is the market price of cassava
measured in kwacha.
a) What is the market equilibrium price and quantity of cassava?
b) Present your result in (a) above in an appropriate graph.
c) Suppose a price floor of K6 is set by the Government. What is the excess demand
or excess supply? How many bags of cassava are sold at this price? Draw this result
on a graph.
d) Suppose a price ceiling of K2 is set by the Government. What is the excess demand
or excess supply? Draw this result on a graph.
e) Suppose a price ceiling of K5 is set by the Government. What is the excess demand
or excess supply? Draw this result on the graph. What can you say about this
result?
f) Now suppose that the Government imposes an excise tax of K2 per bag of cassava.
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(i) How many bags of cassava are now supplied and demanded in the market?
(ii) What price do consumers pay per bag of cassava?
(iii) What price do suppliers receive per bag of cassava?
(iv) How much does the Government receive in tax revenue as a result of this
policy?
(v) Determine the incidence of the tax between buyers and sellers. Draw a
diagram clearly showing the consumers’ and sellers’ share of the tax. What
could happen if: the demand suddenly became relatively more elastic? The
supply curve suddenly became relatively more elastics?
(vi) Show your results in (i) to (iv) in an appropriate diagram shading the
representing how much the Government receives in tax revenue.
(vii) Compare the results in (a) to those obtained in f (i).
(viii) Briefly explain why Government would implement such a policy.
g) Now suppose that the Government imposes a subsidy of K2 per bag of cassava.
(i) How many bags of cassava are now supplied and demanded in the market?
(ii) What price do consumers pay per bag of cassava?
(iii) What price do suppliers receive per bag of cassava?
(iv) How much does the Government spend as a result of this policy?
(v) Show your results in (i) to (iv) in an appropriate diagram shading the
representing how much the Government loses as a result of this policy.
(vi) Briefly explain why Government would implement such a policy.
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