ARE100A+PS+2+Answer+Guide - 2 K 0.5 Elasticity of supply...

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ARE100A INTERMEDIATE MICROECONOMICS: THEORY OF PRODUCTION AND CONSUMPTION FALL QUARTER 2009 Problem Set 2 Answer Guide in Bold Thursday, October 1 1. Write a general expression for a linear demand curve and the general expression for a constant elasticity demand curve. Q d = a + bP + cZ; Q d = aP b Z c . 2. Illustrate in a standard diagram four separate supply curves when half of the eggs are produced in California, one-third of the eggs are produced in Iowa and one-sixth of the eggs are produced in Utah. The fourth supply curve is the total supply curve. Each of three upward sloping supply curves are drawn at varying distances from the vertical axis and they sum horizontally to the 4 th supply curve. 3. Muffins are a complement for eggs, shift demand curve for eggs when muffin price rises? Demand for eggs shifts down and in. 4. Demand function is Q = 100 - 10(Price) + 5(Income). Elasticity of demand when Price=10; Income = 20? Q = 100 – 10(10) + 5(20) = 100; (dQ/dP)/(P/Q) = (-10)(10/100) = -1. 5. Supply function is Q = 5P
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Unformatted text preview: 2 K 0.5 . Elasticity of supply when P = 10 and K = 25? Q=25P 2 dQ/dP = 50P. (dQ/dP)(P/Q) = 50P(P/25P 2 ) = 50/25 = 2. The exponent is the elasticity at every point. 6. Supply function shift up by 50 percent. Price of eggs rises and quantity of eggs fall. 7. Costs shift up by 50 percent and the supply elasticity is 1.0; price of eggs up by 25 percent, what is the elasticity of demand for eggs? τ = 50%, the shift in supply. dP/d τ = η/(η-ε29 = ε = - 1 (equation 2.28) 8. The demand and supply curves for cheese are Q d = 110 – 50P and Q s = 10 +50P. a. What is the market price and equilibrium quantity? Q d = Q s => P = 1; Q = 60. USDA buys cheese for a price of \$2.00. b. What is the new price of cheese? New price \$2.00. USDA demand is horizontal at that price. c. How much cheese will be produced? How much will be bought privately? Q s = 10 + 50(2) = 110; Q d = 110 – 50(2) = 10. USDA takes 100 and must dump it somewhere outside this market....
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This note was uploaded on 04/20/2010 for the course ARE 100A taught by Professor Constantine during the Fall '08 term at UC Davis.

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