Use the demand and supply model to answer the following questions.
How will an increase in the price of a complementary good affect:
the equilibrium price (p*)? (circle one) ↑ ↓ indeterminate
the equilibrium quantity (Q*)? (circle one) ↑ ↓ indeterminate
How will an increase in the price of an important input affect:
the equilibrium price (p*)? (circle one) ↑ ↓ indeterminate
the equilibrium quantity (Q*)? (circle one) ↑ ↓ indeterminate
How will a simultaneous increase in the price of a complementary good and the price of an important input affect:
the equilibrium price (p*)? (circle one) ↑ ↓ indeterminate
the equilibrium quantity (Q*)? (circle one) ↑ ↓ indeterminate
Consider a market with the following demand and supply functions:
Demand: QD = 10 – p,
Supply: QS = p
Use algebra to calculate the numerical values of equilibrium price (p*) and quantity (Q*).
Graph the demand and supply curves. Identify the equilibrium p* and Q*.
Determine the price elasticity of demand (η) when p = 8.
Determine the dollar value of consumer surplus when p = 8.
Draw an indifference curve for each consumer who considers two pairs of commodities.
Ann has regular preferences for goods 1 and 2. (Please put q1 on the horizontal axis.)
Bob is indifferent between Coke and Pepsi. (Coke on the horizontal axis)
Carl only likes salads in fixed proportions: 1 unit of lettuce to 3 cherry tomatoes. (tomatoes on the horizontal axis)
Consider a market with two goods (1 and 2) and two consumers who have regular preferences (Pat and Rich). Pat is poor, and Rich is wealthy. Assume further that wealthy people are less likely to substitute one good for another. On a single graph, show how the indifference curves of Pat and Rich are likely to differ in terms of the structure (i.e., convexity) of their indifference curves.
Assume an economy with just two goods (1 and 2). Households in this economy live in a nomadic tribe and face a budget constraint and a portability (or weight) constraint. The relevant facts concerning household A’s constraints are described below.
Budget: m = 12, p1 = p2 = 1, where m is income, p1 is the price of good 1, and p2 is the price of good 2.
Portability: W = 18, wt1 = 2, wt2 = 1, where W is the total allowable weight, wt1 is the weight of one unit of good 1, and wt2 is the weight of one unit of good 2.
Draw a graph of household A’s budget constraint (please put the quantity of good 1, q1, on the horizontal axis).
Draw a graph of household A’s portability constraint (please put the quantity of good 1, q1, on the horizontal axis).
Use a single graph to identify household A’s consumption opportunity set (budget set) when faced with both of these constraints (please put the quantity of good 1, q1, on the horizontal axis).
Assume that Ann faces a market with two goods (1 and 2). Ann’s Engel curve for good 1 is vertical.
Draw Ann’s income-consumption curve (ICC) on a diagram with q1 on the horizontal axis.
If Ann has regular preferences, explain why her demand curve for good 1 must have a negative slope.
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