2008Exam2

# 2008Exam2 - AEC 305(Fall 2008 Exam II(20 Name 1 Identify...

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AEC 305 (Fall 2008) Exam II (20%) Name _________________________________________________ 1. Identify whether the following events will be a shift , no change , or a movement along the primary supply OR the primary demand curve, holding all other factors constant. Be sure to identify the direction of any shift (i.e., right or left) AND the impact on quantity and price . Note (1a) is answered as an example so everyone gets it correct (4 points each) a. a late frost destroying 50% of the nation’s peach harvest Answer: shift the primary supply curve to the left, resulting in a lower quantity and a higher price b. a 50 cent coupon reducing the price of bagged lettuce c. t he adoption of a new corn variety that reduces pesticide (input) costs by 10%. d. a decrease in the price of a substitute good for beef such as chicken e. an increase in the cost of marketing dairy products to consumers 2. As a pumpkin farmer selling at a farmer’s market in a higher income urban area you have noticed that if you lower your price of pumpkins by 10% your sales increase by 5%. Assuming no other factors are changing, is this the optimal pricing decision if your goal is to maximize revenues? Why or why not? ( 5 points) 3. Given the following equation that we discussed in class representing the demand for pizza, calculate the cross price elasticity of demand for pizza relative to hot dogs AND interpret your elasticity measure. Show all your calculations (including how you derive the quantity

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