AGEC 220 HW2

AGEC 220 HW2 - Name_Seat No AGEC 220 Marketing Farm...

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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 own-price 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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AGEC 220 HW2 - Name_Seat No AGEC 220 Marketing Farm...

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