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UNIVERSITY OF GHANA BUSINESS SCHOOL (MBA PROGRAM: REGULAR AND WEEKEND)

Course Information

• Program: First Semester 2025/2026
• Course Code: UGBS 603
• Course Title: Economics
• Instructors: E. Acquah-Sam, S. Addo, S. Antwi, E. Asiedu, P. Asuming, A., A. Gyeke-Dako, J. I. Mohammed

Problem Set One Submission Instructions

• Submission Deadlines:
  • Regular MBA: Due at the beginning of class on 9th December 2025
  • Groups 3 and 6: 12th December 2025
  • All Other Groups: 13th December 2025
• Requirement: All answers must be handwritten.

Problem One: Demand and Supply Curves

• Given Demand and Supply Curves:
  • Demand: $Q = 500 - 2P$
  • Supply: $Q = -100 + 3P$

Part (a): Identify Supply Curve

• Response: The supply curve is given by the equation $Q = -100 + 3P$ because it reflects how quantity supplied varies with price; specifically, as price increases, the quantity supplied increases.

Part (b): Graph the Demand and Supply Curves

• Graph Instructions: Plot the two equations on a graph where the x-axis is the quantity (Q) and y-axis is the price (P). Mark the intersection point that provides the equilibrium.

Part (c): Compute Equilibrium Price and Quantity

• To find the equilibrium, set the supply equal to demand: $500 - 2P = -100 + 3P$
  • Rearranging the equation gives: $500 + 100 = 2P + 3P$
  • Therefore, $600 = 5P$ leads to $P = 120$,
  • Substitute $P$ back into either equation to find $Q$:
    $Q = 500 - 2(120) = 260$.
  • Equilibrium Price: 120, Equilibrium Quantity: 260.

Part (d): Quantity Demanded and Supplied at Current Price of 100

• Quantity Demanded:
  $Q_d = 500 - 2(100) = 300$
• Quantity Supplied:
  $Q_s = -100 + 3(100) = 200$
• Situation Analysis: The quantity demanded (300) exceeds quantity supplied (200), indicating a market shortage at this price. Expect upward pressure on prices as demand outstrips supply.

Part (e): New Demand Equation $Q = 600 - 2P$, determine new equilibrium

• Set new demand equal to supply:
  $600 - 2P = -100 +3P$
• Rearranging:
  $600 + 100 = 2P + 3P$
  $700 = 5P$ leads to $P = 140$,
• Substitute $P = 140$ into either equation for new equilibrium quantity:
  $Q = 600 - 2(140) = 320$.

Problem Two: Elasticities of Demand for Personal Computers

• Given Elasticities:
  • Price Elasticity = -5
  • Cross-Price Elasticity with Software = -4
  • Income Elasticity = 2.5

Statement Evaluations

• Part (a): True. Price reduction increases quantity demanded and total revenue due to high price elasticity.
• Part (b): False. Cross-price elasticity indicates a 5% price reduction leads to 20% increase in software demand.
• Part (c): True. Price elastic demand with normal goods established.
• Part (d): False. Revenue for software and computers does not simultaneously rise with falling software prices.
• Part (e): True. 2% price drop offsets 1% income decline.

Problem Three: Price Elasticity of Demand for Alcohol

Part (a): Nature of Price Elasticity inferred from Observations

• Statement: “the cheaper the liquor, the more people drink” indicates an elastic demand as prices and demand directly correlate.

Part (b): Calculate Price Elasticity of Demand for Alcohol

• Calculation from studies: 10% increase in prices results in 5% consumption drop.
  E_d = rac{-5 ext{%}}{10 ext{%}} = -0.5.
• Conclusion: Demand for alcohol is price inelastic (less than 1 in absolute value).

Part (c): Author's Belief on Tax Impact

• Despite inelastic demand, a significant tax can deter healthcare and social costs which induce a reduction in consumption. Supported via empirical health studies.

Problem Four: Revenue Increase Despite Price Drop

• Statement: Company reported revenue GHS 2.3 billion, up 85% due to 108% shipment increase despite 21% average price decrease.
• Insight: Rapid increase in units sold can outweigh losses from lower selling prices, highlighting revenue generation potential of volume sales.

Problem Five: Evaluating Employee's Profitability

Part (a): Estimate Annual Marginal Revenue Product

• Calculation: 1.5 vehicles/week * 50 weeks * (GHS 25,000 per vehicle) = GHS 1,875,000 annually.

Part (b): Consultant Salary and Profitability

• Base Salary: GHS 60,000 with 28% additional costs = GHS 76,800 total. Profit generated = (GHS 1,875,000 - GHS 76,800 = GHS 1,798,200 indicates consultant's profitability.

Problem Six: Falling Gold Price Factors

Factors Identified as Demand/Supply-Side

• Factors: (1) Rising interest rates (demand-side), (2) Increased production costs (supply-side), (3) Market speculation (demand-side).

Part (b): Relationship Between Interest-Bearing Assets and Gold

• Relationship is substitutes; as interest rates rise, demand for gold falls as investors avoid non-yielding assets.

Part (c): Prospects of US Economy and Gold

• Positive prospects for the economy improve investor confidence leading to lower gold demand; showcases substitute relationship.

Part (d): Political News and Gold Prices

• Diagram illustration shows increased optimism reducing gold prices due to shifts in demand curves.

Problem Seven: E-levy and Elasticity of Demand for Electronic Transactions

Part (a): Price Elasticity of Demand for Mobile Money Transactions

• Reflects high sensitivity of quantity demanded to price changes in electronic transactions.

Part (b): Demand Evaluation Post E-levy

• 24% anticipated drop implies price inelasticity as transaction revenue may drop significantly.

Part (c): Future Revenue Implications from E-levy

• Revenue prediction indicates initial drops; E-levy not likely to yield substantial government revenue immediately.

Part (d): Short vs Long-Term Elasticity

• Short-run demand likely less elastic than long-run as customers adapt post E-levy, consistent with elasticity fundamentals and consumer behavior.

Problem Eight: Elasticity Comparisons

Good Pairs Produced with Price Elasticity Discussion

• (a): Textbooks vs. Mystery Novels – expected mystery novels to have more elastic demand due to availability of substitutes.
• (b): Diana Hamilton tracks vs. General Ghanaian gospel – gospel more elastic due to substitutes in choice.
• (c): Heating oil – next six months vs. five years – expected longer-term demand to be more elastic due to planning flexibility.
• (d): Lemonade vs. Water - lemonade expected to be more elastic as a luxury good in contrast to essential water.

Problem Nine: Production Function Estimations

Production Function Defined

• Given production function: $Q ext{ } ext{≡ F(K, L) = 2L imes K}$.

Part (a): Diminishing Returns to Labour Explanation

• Diminishing returns implies increased labor brings smaller incremental output.

Part (b): Constant Returns to Scale Verification

• Constant returns imply doubling inputs doubles output, applicable here.

Profit Maximization: Costs and Output Decisions

• Labor costs GHS 120/day; depreciation considerations yield a strategy around inputs for profit maximization.

Problem Ten: Accepting Production Offers

Supply Cost Analysis

• Offer for 10,000 PCs at $800 must be weighed against average unit costs across production quantities; profit-maximizing acceptance detritus.

Problem Eleven: Market Structure and Patent Status

Analysis Following Patent Expiry

• Market shifts from monopoly (patent protected) to perfect competition as other firms enter post-expiry.