1.

i. Draw graphs of demand that feature a) Unit Elasticity, b) Perfect Inelasticity, c) Perfect 

Elasticity and explain.

ii. Consider a firm that drops its price from £7 to £5. As result, the quantity sold increases from 

20 to 23. Calculate the price elasticity of demand and use it to explain whether revenues will 

increase or decrease.

2. Using supply and demand diagrams, show the effects of the following changes on the price and 

quantity of iphone 12 produced by Apple:

i. An increase on call tariffs (price of calls).

ii. Samsung reduces the prices of its phones by 10%.

iii. Wages for workers in the economy increase.

3. Explain, using a diagram (or diagrams), why firms maximize profits where marginal cost equals 

marginal revenue. 

4. Draw a diagram to show the difference in output and price between a perfectly competitive firm 

and monopoly. Explain why monopoly results in a welfare loss compared to a perfectly competitive 

market.