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hwork2 - Homework 2 Due Name 1 10 pts"A good harvest will...

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1 Homework 2. Name _______________________________________ Due 9/28/04 1) 10 pts . "A good harvest will often lower the income of farmers." Justify this seemingly contradictory statement using supply and demand graphs and the concept of elasticity. 2) 10 pts total. 5 points each. a) Find the elasticity of demand between these two points: Point 1: Price = $8, Quantity = 220. Point 2: Price = $12, Quantity = 180. _________________________ b) Find the elasticity of supply between these two points: Point 1: Price = $7, Quantity = 75. Point 2: Price = $9, Quantity = 125. _________________________
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2 3) 11 pts total . Assume that the elasticity of demand for chicken is 3.00. (Elastic demand example.) a) If supply increases to the point where the equilibrium quantity goes up by 10%, by what percentage will chicken price change? Be sure to say if it rises or falls.(5pt) b) Graph the supply shift and explain what happens to total revenue (increase, decrease or no change). (6 pts.) 4) 11 pts total . Assume that the elasticity of demand for bread is 0.5. (Inelastic demand example.) a) If supply decreases to the point where equilibrium quantity falls by 5%, find the percentage change in bread price?
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