basic micro ecomnmic assignemnt ECON 101

Signature Date

(1)

Draw and Find the Equilibrium. The following table shows the quantities of corn supplied and demanded at different price levels.

Price per ton

Quantity supplied

Quantity demanded

$140 40 100 $150 50 80 $160 60 60 $170 70 40

a. 1.) Use the line drawing tool to draw and label the demand line given the information in the table above.

2.) Use the line drawing tool to draw and label the supply line given the information in the table above..

Carefully follow the instructions above, and only draw the required objects.   b. The equilibrium price of corn is $ , and the equilibrium quantity is tons. (Enter your responses as integers.)

c. At a price of $ , there is excess (1) equal to tons. (Enter your response as an integer.)

150

demand supply

20 36,000 22 34,000

Using the initial-value method, the price elasticity of demand for Willie’s widgets is . (Enter your response rounded to two decimal places.) We can conclude that the demand for Willie’s widgets under these conditions is

A. elastic. B. perfectly inelastic. C. unit elastic. D. inelastic.

I pledge that I will neither givenor receive any aid from any other person during this assignment, and that the work presented here is entirely my own.

CRN: _____________________ Course: MICROECONOMICS

Student:__________________________________________ I.D: _____________________

(7 marks)

Willie’s widgets currently sell for $ each. At that price, Willie has sold widgets. Willie would like to maximize his revenue, so he raises the price of a widget to $ each. Willie has seen the sales of his widgets drop only slightly to .

(2 marks)

Assignment 2 ———– / 20

3.

4.

Income and the Price Elasticity of Demand for Medical Care. Like many other developing nations, Peru subsidizes medical care, charging consumers a small fraction of the cost of providing services such as visits to medical clinics. The price elasticity of demand for medical care is 0.67 for poor households but only 0.03 for wealthy households. Suppose the government reduced its subsidies for medical care, and the price to consumers increased by percent.20 The changes in the quantity of medical care demanded for poor households would be percent (enter your response rounded to one decimal place) and percent for wealthy households (enter your response rounded to one decimal place).

Income and Starbucks Coffee Shops. Starbucks just hired you to determine whether your city could support a new Starbucks coffee shop. There are currently Starbucks coffee shops in the city, and each has just enough customers to survive. The average household income in the city is expected to increase by percent per year for the next 20 years. Suppose the income elasticity for Starbucks coffee products is 1.25 and the population is assumed to be constant.

four 10

a. By what percentage will demand for Starbucks coffee products increase each year based on income growth?

A. %.125 B. %.1.25 C. %.12.5 D. 8.0%.

b. How soon will the area have enough demand to support a Starbucks?fifth A. 1 year. B. 12 years. C. 8 years. D. 2 years.

(2 marks)

(2 marks)

5.

1: Application

(1) increase decrease

Related to Application: I Can Find That Elasticity in 4 Clicks!1

According to the USDA web site (http://www.ers.usda.gov/Data/Elasticities/), the following are elasticities for broccoli in the U.S.:conventional

Own price elasticity of demand − 1.05                                                Income (expenditure) elasticity of demand    0.86                                                Cross price elasticity of demand    0.27

If production techniques the equilibrium price of broccoli by %, the quantity of

broccoli demanded would (1) by percent. (Enter your response rounded to two decimal places.)

The quantity of broccoli demanded would by percent. (Enter your response rounded to two decimal places.)

organic decrease

I CAN FIND THAT ELASTICITY IN 4 CLICKS! APPLYING THE CONCEPTS: Where do I find estimates of elasticities of demand? Suppose you want to find estimates of the elasticities of demand (own price, income, cross-price) for orange juice. The U.S. Department of Agriculture has a web site that provides estimates of demand elasticities for hundreds of food products (from apples to yogurt) for dozens of countries (from Albania to Zimbabwe). Starting from (http://www.ers.usda.gov/Data/Elasticities/), you are four clicks away from the following estimates of demand elasticities for orange juice in the U.S.: income elasticity = 2.212; own price elasticity = -1.391; cross-price elasticity for apple juice = 0.908. Here are the clicks: (1) Demand Elasticities from Literature; (2) Choose Country; Choose Commodity; (3) Cross Commodity; (4) Submit. It’s important to note two things about the reported elasticities. First, the regular price elasticity is reported as a negative number and labeled “own price elasticity” for “Marshallian Demand.” Second, the reported “expenditure elasticity” is similar to the income elasticity, with the denominator of the elasticity equal to the percentage change in total consumer expenditure (versus percentage change in income).

improved decreased conventional 20

conventional

(3 marks)

6.

(1) decreases increases

(2) elastic inelastic

Related to Application: Vanity Plates and the Elasticity Of Demand2

Elasticity and Vanity Plates. Suppose the price elasticity of demand for vanity plates in your state is . The initial price is $ and the initial quantity is plates per week. Suppose the state s the price by percent.

0.80 25 1,600 decrease 8

a. What will be the new number of vanity plates sold per week? plates (enter your response as an integer).

What will be the new total revenue per week? $ (enter your response as an integer).

b. The in price (1) total revenue because demand is (2) .decrease

APPLYING THE CONCEPTS: If demand is inelastic, how does an increase in price affect total expenditures? The radio quiz show Wait Wait…Don’t Tell Me! recently asked the following question: Which state has the highest number of vanity license plates? The correct answer is Virginia, where over 10 percent of cars have vanity license plates such as 10SNE1 and GLBLWRMR. An economist might have extended the question to ask why there are so many vanity plates in Virginia. Although Virginians may be unusually vain, a more plausible explanation is that the price of vanity plates is only $10, or about one third of the average price in the United States. Is the low price in Virginia rational from the state’s perspective? Suppose the state’s objective is to maximize the revenue from vanity plates. According to a recent study, the demand for vanity plates in Virginia is inelastic, with a price elasticity of demand equal to 0.26. Therefore, if the state increased the price, the total revenue from vanity plates would increase.

SOURCE: Based on Erik Craft, “The Demand for Vanity (Plates): Elasticities, Net Revenue Maximization, and Deadweight Loss.” Contemporary Economic Policy 20 (2002): 133 144.−

2: Application

VANITY PLATES AND THE ELASTICITY OF DEMAND

(4 marks)

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