# Qns.docx - Imagine an agricultural market(oranges in which...

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Imagine an agricultural market (oranges) in which we have year to year data on price and output. We know that demand and supply are linear: (A) (10 points) Derive the equilibrium price and quantity functions (B) (B) (10 points) The econometricians tell us that: ? 0 = 100 , ? 1 = −4 , ? 0 = 0, ? 1 = ? , with R varying from year to year with weather conditions. Derive the equilibrium price and quantity functions in this special case. (C) (5 points) Prove that, as R varies, the equilibrium values of P and Q trace out (‘Identify”) the demand curve (not the supply curve). A consumer faces a standard 2-good purchasing environment, say X and Y, with fixed prices ( ?? and ?? ) and fixed income I. She has the (twice differentiable) utility function with the usual properties that “more is better” and the marginal rate of substitution diminishes in X. (A) (15 points) Illustrate graphically the individual’s optimal choice of X and Y in this two good world. Explain briefly what you are doing. Be sure to define all concepts used.

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• Fall '17
• Dippold, Steffi

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