Midterm 1 Answers

Midterm 1 Answers - The Colorado College Department of...

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1 The Colorado College Department of Economics and Business Block 5: Principles of Microeconomics Block 5 Econ 151 Midterm #1 answers 1) (a) (i) Price Quantity demanded Quantity supplied $0.5 90 30 1 80 50 1.5 70 70 2 60 90 2.5 50 110 (ii) The equilibrium price is $1.5 and the equilibrium quantity is 70. (iii) (b) (i) The demand curve shifts inwards as people consume less eggs – price and quantity both falls. (ii) The demand curve shifts to the left (inwards) – price and quantity both falls. (iii) The supply curve shifts upwards (or leftwards) as chicken farming becomes more expensive. Price rises and quantity falls. (iv) This increases the demand for eggs. The demand curve shifts to the right – both price and quantity rises. $1.50 70 D S Q P
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2 2) (a) (i) The price elasticity of demand is given by [(Q 1 -Q 0 )]/[(Q 1 +Q 0 )/2]/[P 1 - P 0 )]/[(P 1 +P 0 )/2]. Using this mid-point method for calculating elasticity we get the elasticity of demand for compact discs when the price rises from $8 to $10, with the income of $10,000 is given by [(42-50)]/[(50+42)/2]/[10-8)]/[(10+8)/2] = -.173/.22 = -.790 (ii) When the income is $12,000 the elasticity is given by [(55-60)]/[(60+55)/2]/[10- 8)]/[(10+8)/2] = -.0869/.22 = -.395 (i) The income elasticity of demand is given by [(Q 1 - Q 0 )]/[(Q 1 + Q 0 )/2]/[ I
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This homework help was uploaded on 04/19/2008 for the course EC 151 taught by Professor Ghosh during the Spring '08 term at Colorado College.

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Midterm 1 Answers - The Colorado College Department of...

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