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Microeconomics: Supply and Demand and Price

Why is the shape of the economy’s production possibility curve concave? The following data show the production possibilities for a hypothetical economy during one yearbook these points on a graph. Do they appear to lie along a straight line? What is that line production possibility frontier? (b) Explain why output levels X=400, Y=200 or X=300, Y=300 are inefficient. Show these output levels on your graph. (c) Explain why output levels of X=500, Y=350 are unattainable in this economy. (d) What is the opportunity cost of an additional unit of Y output in terms of X output in this economy.

Does this opportunity cost depend on the amounts being produces? 9. Give two reasons for the gradual increase in the number of free market economies over the last two to three decades. 2 10. (a) Consider a demand curve of the form SQ = -UP + 20 where SQ is the quantity demand of a good and P is the price of the good. Also consider a supply curve of the form SQ = UP – 4 where SQ is the quantity supplied. Graph these curves. At what values of P and Q do these curves intersect? (b) Now suppose at each

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price individuals demand four more units of output, I. E. The demand curve shifts to SQ’ = – 2 P + 24, Graph this new curve.

At what values of P and Microeconomics: Supply and Demand and Price By Caligula (c) Now, finally, suppose the supply curve shifts to SQ’ = UP – 8. Graph this curve. At what values of P and Q does the new supply curve intersect the new demand curve? (d) State 2 factors which can cause the demand curve to move from SQ to SQ (e) State 2 factors which can cause the supply curve to move from SQ to SQ. 11. The following data represent 5 points on the supply curve for orange Juice. Price ($ Per Liter) Quantity (Millions of Elites) 1 100 2 300 3 500 4 700 5 900 And these data represent 5 points on the demand curve for orange Juice.

Price ($ Per 1 700 2 600 4 400 5 300 (a) Graph the points of these supply and demand curves for orange Juice. Be sure to put price on the vertical axis and quantity on the horizontal axis. (b) Do these points seem to lie along two straight lines? If so, figure out the precise algebraic equation of these lines. (c) Use your solutions from part b to calculate the “excess demand” for orange Juice if the market price is zero. (d) Use your solutions from part b to calculate the “excess supply of orange Juice if the orange Juice price is $6 per liter. 12.

Use demand and supply curves to analyses the following situations: (a) What will append in the market for poultry if bird flu kills thousands of birds. (b) What will happen in the market for tomatoes if a new study is released that shows tomatoes contain antioxidants (may help prevent cancer) and a new crop rotations technique is discovered which allows tomatoes to be grown more easily. (c) What happen in the market for fish if the price of chicken rises dramatically (assume fish and chicken are substitutes), and new laws significantly limit the amount of fish that can be caught. 3 13.

Why is price elasticity of demand usually negative? If the price elasticity of emend for cars is less than the price of elasticity of demand for medical care, which demand is more elastic? Give a numerical example. 14. “Gaining extra revenue is easy for any producer – all it has to do is raise the price of its product”. Do you agree? Explain when this would be true and when it would not be true. 15. If the income elasticity of demand for clothes is positive and the income elasticity of demand for chicken feet is negative what does this mean? Use numerical examples in your answer. Of demand and negative cross elastically of demand. 7. Suppose that the demand curve for garbanzo beans is given by Q = 20 – P Where Q is thousands of pounds of beans brought per week and P is the price in dollars per pound. (a) How many beans will be brought at P = O? (b) At what price does the quantity demanded of beans became O? (c) Calculate total expenditures ( P x. Q. ) for beans at each whole dollar price between the prices identified in parts a and b above. 18. Suppose that the market demand curve for pasta is a straight line of the form Q 300 – SOP, where Q is the quantity brought in thousands of boxes per week and P is the price per box in dollars. A) At what price does the demand for pasta go to O. Develop a numerical example to show that the demand for pasta is elastic at this point. (b) How much pasta is demanded at a price of $0? Develop a numerical example to show that demand is inelastic at this point. (c) How much pasta is demanded at a price of $3? Develop a numerical example that suggests total spending on pasta is as large as possible at this price. 19. Suppose that a consumer has a choice between two goods X and Y. If the price of X is $2 and the price of Y is $3, how much of X and Y does the consumer purchase in order to maximize satisfaction, given an income of $17.

Use the following information about marginal utility: 20. Attendant allocates his budget of $24 per week among 3 goods. Use the following table of marginal utilities for good A, Good B and Good C to answer the questions below: SQ MUM CB NUB SQ MUCH 1501 75 1 25 240260220 3 30340315 4204 304 10 515520575 units MIX MI-JAY 1105 284 323 422 512 4 (a) If the price of A is $2, the price of B is $3, and the price of C is $1, how much of each does Attendant purchase in equilibrium? (b) If the price of A rises to $4 while other prices and Attendant’s budget remain constant, how much of each dose he purchase in equilibrium? ) Using the information from part (a) and (b), draw the demand curve for good A. Be sure to indicate the price and quantity demanded for each point on the curve. 21 . Queen Kong makes $200 a week at her summer Job and spends her entire income provide utility to her. Furthermore, Queen Kong insists that for every pair of Jeans she buys, she must also buy a pair of shoes (without the shoes, the new Jeans are worthless). Therefore, she buys’ the same number of pairs of shoes and Jeans in any given week. (a) Write down the algebraic equation for the queen’s budget constraint if Jeans cost 20 a pair and shoes cost $20 a pair.

How many will the queen buy of each. (b) Write down the algebraic equation for the queen’s budget constraint if the price of Jeans rises to $30 a pair. How many shoes and Jeans will she buy? (c) Show your results by graphing the budget constraint from part a and part b. (d) Now we look at Queen’s Gongs demand curve for Jeans. First, calculate how many pair of Jeans she will choose to buy if Jeans prices are $30, $20, or $5. Then use this information to graph the Queen’s demand curve for Jeans. 22. .Briefly explains the properties of indifference curves. 3.

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