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Unformatted text preview: General Supply Function:
Q=h+kP+lPi+mPr+nT+rPe+sF
Sign of Slope Parameter (is‘9 uévtﬁl)
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can"; ‘Pnu. \nqusn. m What happens to the supply of random access memory (RAM) chips, a component in the manufacture of
personal computers, w en each of the following changes occurs? a) Two huge new manufacturing plants begin operation in South Korea. 5‘ 1‘ b) Scientists discover a new production technology that will lower the cost of making RAM chips. 5 T
c) The price of silicon, a key ingredient in RAM chip production, rises sharply. S 4' d) The price of RAM chips increases. 3 :8 UﬁfKo" “A , G $ 1‘ e) The ﬁat for personal computers turns sour and RAM chip makers now expect RAM chip prices to fall by 25 percent next quarter. 8 It The general demand function for good A is =75ar; —0.05M+6PB “0113313, +2N where Q: = quantity demanded of good A each month, PA = price of good A, M = average
household income, Pa = price of related good 8,1: = a consumer taste index ranging in value
from 0 to 10 (the highest rating), P5 = price consumers expect to pay next month for good A,
and N = number of buyers in the market for good A. . + I ter ret the interce t arameter in the ene I d d f t' ‘ Mk ' u n ' 1 S
a. n p p p g ra eman unc Ionﬁa 3 0‘ ”H . ‘9‘.“
b. What IS the value of the slope parameter for the price of good A? Does it have the correct algebraic sign? Why? 1..  ‘2. \cwJ .4 J . ... . .9 1h b c o c. Interpret the slope parameter for income. ls good A normal or Explain. ¢ ..  , o g
d. Are goods A and B substitutes or complements? Explain. Interpret the slope parameter forthepriceofgoodB. dsb ab sttg ”Nah:
e. Are the algebraic signs on the slope parameters for‘h', PE, and N correct? Explain. a. 9 g,“ ‘3
1‘. Calculate the quantity demanded of good A when PA: $2, M: $60,000, pa =$24,t— _ 7’ “ ' " ‘ V
= $12, and N = 12,000.
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, 21,006 14,. .. U3 9‘ The following general supply function shows the quantity of good X that producers offer for
sale (Q): Q: =478+4P—8£, +3.2T+12Pr —1.6}:+2F where P is the price of X, P, is the price of labor, Tis an index measuring the level of technology, P, is the price of a good R that is related in production, P9 is the expected future price of good X, and F is the number of firms in the industry. 0. Determine the equation of the supply curve for X when P]: $150, T: 10, PH — $60, Pe —
$75, and F: 15. Plot this supply curve on a graph. b. Suppose the price of labor Increases from $150 to $155. Find the equation of the new
supply curve. Plot the new supply curve on a graph. C. Is the good related in production a complement or a substitute in production? Explain. d. What is the correct way to interpret each of the coefficients in the general supply
function given above? Construct a graph showing equilibrium in the market for coffee. Label both axes and denote the initial
equilibrium price and quantity as Po and On. For each of the following market events, draw an
appropriate new supply and demand curve for coffee and predict the impact of the event on the market
price and quantity sold in the new equilibrium. 3) a blight on coffee plants kills off much of the Brazilian crop b) coffee workers organize themselves into a union and gain higher wages
c) coffee is shown to cause cancer in laboratory rats d) . price of tea declines e) coffee prices are expected to rise rapidly in the near future, ‘ Q9. The estimated demand for a good is Q=25—5P+0.32M+12Pn 3.5.,“ athﬂmg.
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where Q is the quantity demanded of the good, P is the price of the good, M is income, and P' Is the price of related good R. a) Are this good and related good R complement or sub__s___titutes? ?t¥ 1‘ a, 1‘ ‘1 5 b
b) If' Income increases by $20,000, all else constant, Whappen to the quantity demanded? _%1(v3°,90°)  040° 5Q Ali
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 Spring '08
 ISSE

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