Name________________________________________________Seat No.____________
AGEC 220: Marketing Farm Products
Homework #2: Demand, Supply, and Competitive Markets
KEY
Demand Concepts (Chapter 4)
1. Suppose the demand for apples by a typical household can be represented by the
following equation:
Q
A
= 90 – 100P
A
+ 40P
B
+ .001I
where Q
A
= annual number of apples purchased
P
A
= price per apple
P
B
= price per banana
I
= annual income.
(a) Graph the demand for apples for a typical household with $50,000 annual income,
when the price per apple is $.50 and the price per orange is $.75.
Use the space
provided, and carefully label all axes and intercepts. (2)
(b) What is the ownprice elasticity of demand for apples when income is $50,000,
price per apple is $0.50, and price per banana is $0.75? Show your work. (2)
(c) What is the economic interpretation of your answer in part (a)? (2)
1
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(d) Calculate the elasticity of demand for apples with respect to income when income
is $50,000, price per apple is $0.50, and price per banana is $0.75.
Show your
work. (2)
(e) Suppose income were to increase by 2 percent, while the price of apples and
price of oranges remained unchanged.
Calculate the resulting percentage change
in the demand for apples. Show your work. (2)
2. Suppose that in August the USDA revises its forecast of this year’s U.S. corn harvest,
saying that the quantity supplied would be 3% higer than previous forecasts.
The price
elasticity of demand for corn is 0.5, and the price of corn before USDA’s announcement
was $5.00.
Calculate the new forecast for the price of corn at harvest.
Show your work.
(4 points)
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 Spring '08
 Staff
 Supply And Demand, Name________________________________________________Seat No.____________

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