03 Jun Question 1. If the demand curve for wheat in the
Question
1. If the demand curve for wheat in the United States is P=12.4 – Q_D where is the P is the
farm price of wheat (in dollars per bushel) and Q_D is the quantity of wheat demanded
(in billions of bushels), and the supply curve for wheat in the United States is P= -2.6 +
2Q_S where Q_s is the quantity of wheat supplied (in billions of bushels), what is the
equilibrium price of wheat? What is the equilibrium quantity of wheat sold? Must the
actual price equal the equilibrium price? Why or why not?
2. The Haas Corporations executive vice president circulates a memo to the firms top
management in which he argues for a reduction in the price of the firms product. He
says such a price cut will increase the firms sales and profits.
a. The firms marketing manager responds with a memo pointing out that the price
elasticity of demand for the firms product is about -0.5. What is this fact
relevant?
b. The firms president concurs with the opinion of the executive vice president. Is
she correct?
3. In the following diagram, we show one of Janes indifference curves and her budget line.
a. If the price of good X is $100, what is her income?
b. What is the equation for her budget line?
c. What is the slope of her budget line?
d. What is the price of good Y?
e. What is Janes marginal rate of substation in equilibrium?
Good X
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