1 22 points assume that the supply of imported

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1. (22 points) Assume that the supply of imported macadamia nuts is perfectly inelastic at a quantity of 100 lbs/day. The domestic supply curve (lbs/day) of macadamia nuts is 200 p where p is the price of nuts in $/lbs. (a) Draw the supply curves for imported, domestic, and total (aggregate) supply of nuts. Clearly label each supply curve. Indicate the total (aggregate) market quantity at $0.50 and $1.00. (b) Now the protectionist U.S. nut producer group Make America Nuts Again , convinces congress to ban imported macadamia nuts. Does the elasticity of total supply get larger, smaller, or stay the same? Explain your answer .
ECN 100 Mid-Term 1 7 2. (32 points) Suppose that your total income devoted to carbonated cola is $80. Cans of Coke- Zero ( C ) cost $1. Suppose that you are always willing to trade 3 cans of soda for 2 bottles of soda. (a) Draw two indifference curves representing your preferences. Clearly label two bundles on each of your indifference curves. (b) Again assume the price of cans is fixed at $1. Over what range of prices for bottles will you purchase a positive number of bottles?
8 ECN 100 Mid-Term 1 (c) Now assume assume that on their own, Bottles cost $2 and Cans cost $1. However, in a promotion, Coke will also give two cans away free for every bottle that is purchased. In other words, if you buy X bottles, you also get 2X cans free. You have $80 to spend on soda. Draw your opportunity set (reflecting the promotional deal) in the space below. (d) If you have the same preferences for cans and bottles as articulated in part (a), what will be your optimum bundle? Illustrate the answer in the picture above. Now the optimal bundle will be a combination of bottles and cans, since the cans are basically free you would spend all your money on 40 bottles and also consume the 80 cans.

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