Consider the general demand function Qd = 8000 – 16P + 0.75 M + 30 Pg if M = $30,000 and Pg = $50, what is the constant term if the equation for the demand curve is written in the form Qd = a – bP? Question 2 Using the information from the above problem, what is the quantity demanded when the price of good is $1000? Question 3 Consider the supply function Qs = 60 + 5P – 12Pi + 10 F Where Qs = quantity supplied, P = price of the commodity, Pi = price of a key input in the production process, and F = number of firms producing the commodity. Of Pi = $90 and F = 20, what is the intercept of the supply curve written as Qs = a + bP Question 4 Using the information in the above problem, what is the intercept (a’) of the inverse supply function written in the form P = a’ – b’Qs Question 5 Using the information in the above two problems, what is the coefficient for quantity (b’) of the inverse supply function written in the form P = a’ – b’Qs Question 6 Suppose you are the manager of a California winery. How would you expect the following events to affect the price you receive for a bottle of wine? The price of comparable French wines decreases. One hundred new wineries open in California. The unemployment rate in the United States decreases. The price of cheese, a complementary product, increases. The price of a glass bottle increases significantly due to new government anti-shatter regulations. Researchers discover a new wine-making technology that reduces production costs. The price of wine vinegar, which is made from leftover grape mash, increases. The average age of consumers increases, and older people drink less wine. Answer A. The equilibrium price increases and quantity decreases. B. The equilibrium price and quantity increase. C. The equilibrium price decreases and quantity increases. D. The equilibrium price and quantity decrease. Question 7 The famous Swedish economist Assar Lindbeck remarked in his book on rent controls, “Rent control appears to be the most efficient technique presently known to destroy a city—e xcept for bombing.” Rent controls place price ceilings on rents at levels below equilibrium rental rates for the state purpose of making housing more affordable for low-income families. Assuming rent control is effective at keeping rent controlled housing rates below market rates and using supply and demand analysis, match the following questions with the best available answer. Answer How does imposing rent control affect the number of housing units available to low-income families? Under rent controls, can all low-income families get rent-controlled housing? Will any shortages be corrected by market forces? What happens to investment in new rental housing? Answer A. Increases it/them B. Decreases it/them C. Yes D. No Question 8 The world market for newly smelted primary aluminum (i.e., excluding scrap or recycled sources) recently experienced a period of rising inventories and falling prices. The Wall Street Journal reported that Russian smelter Rusal, the world’ s largest aluminum producer, expected primary aluminum ingot prices would need to fall even further before worldwide inventory accumulation could stabilize. Suppose the demand for primary aluminum can be represented by the equation Qd = 124 – 0.025 P Where Qd is the annual worldwide quantity demanded in millions of metric tons of new aluminum P is the dollar price of new aluminum per metric ton. Further, suppose the world supply of aluminum is Qs = -50 + 0.025P Where Qs is the annual worldwide quantity supplied in million of metric tons. At the time of Rusal’s concern, primary aluminum prices were relatively high at $3,600 per metric ton. At this price, calculate the monthly rate of inventory growth in the global aluminum market using the given demand and supply equations for the world aluminum market. Question 9 Using the information from the above problem, what is the equilibrium price of aluminum given the existing market conditions? Question 10 Using the information from the above two problems, what is the equilibrium quantity of aluminum given the existing market conditions? Question 11 Moving along a demand curve, quantity demanded decreases 8 percent when prices increase 10 percent. The price elasticity of demand is calculated to be: Question 12 Which statement correctly describes your answer to the previous question? Answer Price elasticity of demand is unitary elastic. Revenues do not change. The price elasticity of demand is elastic. The movement along the demand curve (decrease in quantity by 8% and increase in price by 10%) leads to a decrease in total revenues. The price elasticity of demand is inelastic. The movement along the demand curve (decrease in quantity by 8% and increase in price by 10%) leads to a decrease in total revenues. The price elasticity of demand is elastic. The movement along the demand curve (decrease in quantity by 8% and increase in price by 10%) leads to an increase in total revenues. The price elasticity of demand is inelastic. The movement along the demand curve (decrease in quantity by 8% and increase in price by 10%) leads to an increase in total revenues. 2 points Question 13 The price elasticity of demand for a product is equal to -1.5 over the range of prices being considered by the firm’s manager. If the manager decreases the price of the product by 6 percent, the manager predicts the quantity demanded will _____________ by ________ percent. Answer decrease, 9 increase, 9 decrease, 4 increase, 4 Question 14 The price elasticity of demand for an industry’ s demand curve is equal to -1.5 for the range of prices over which supply increases. If total industry output is expected to increase by 30 percent as a result of the supply increase, managers in this industry should expect the market price of the good to _________ by ___________ percent Answer decrease, 20 increase, 45 decrease, 45 increase, 20 Question 15 Using the method shown in your text, calculate the price elasticity of demand over the following range Price = $3, Quantity = 1,800 Price = $5, Quantity = 1,400 Question 16 If the demand curve is given by Qd = 2400 – 200 P What is the price elasticity of demand when P = 7?