the supply and demand schedules

1. Suppose that the supply and demand schedules for pizza in the ABC campus are as follows:

PRICE QUANTITY SUPPLIED QUANTITY DEMANDED
(TL/slice) (slices/week) (slices/week)
1 200 1000
2 400 800
3 600 600
4 800 400
5 1000 200

a) Find the equilibrium price and quantity of pizza

b) Find the price elasticity of demand at equilibrium and indicate whether it is elastic, unit-elastic, or inelastic.

c) Find the price elasticity of supply at equilibrium and indicate whether it is elastic, unit-elastic, or inelastic.

2. The annual market own-price demand function for good X is estimated as

X=142- 5 PX – I -3.5 PY

where X = quantity demanded of good X in units/year PX = price of good X in dollars/unit I = per capita income in dollars/year PY = price of good Y in dollars/unit.

a) Calculate the market (own-price) demand curve when I = 25 and PY =12.

b) Using your results from part a). calculate the quantity of good X demanded in the market when PX=10.

c) Calculate the own-price elasticity of demand for good X when PX =10, PY =12 and I = 25. Interpret it

d) Calculate the cross-price elasticity of demand for good X assuming PX = 10, PY =12 and I = 15. Interpret it

e) How can a seller use the cross-price elasticity of demand you computed in part d)

3. Assume you are an economic analyst for United Airlines. Using your knowledge of own price elasticity of demand, suggest three pricing strategies for the airline that will increase the company’s total revenue.

4. Fatma has an income of 100 TL per week to spend on comic books and cookies. The price of comic books is 20 TL and the price of cookies is 5 TL. The indifference curves in the figure below (U1, U2, and U3) reflect Fatma’s preferences.

a. Independent from her income which combination(s) give(s) higher utility to Fatma. Combinations on U1, U2, or U3. Why?

b. Draw Fatma’s budget line on the above figure, and show Fatma’s chosen bundle (equilibrium combination).

c. What are her equilibrium quantities of comic books and cookies?

d. Ceteris paribus, the price of comic books decreases to 10 TL. Draw the new budget line of Fatma on the same figure and show the new utility-maximizing bundle of Fatma. What are her equilibrium quantities of comic books and cookies?

5. By providing an appropriate example, briefly discuss the conditions of utility maximization.

6. Due to economic crises average income decrease by 10%.Given the decrease in income by 10%, the demand for
meat decrease by 10%.

a) What is the income elasticity for meat?

b) Is meat a normal good or an inferior good? Why?

7. Suppose that at a given level of satisfaction the marginal rate of substitution of product Y for product X is
constant. What does this imply about the relevant indifference curve? What type of relationship is implied for
product X and Y?
U1
U2
U3

8. By using demand-supply analysis, show how the following events affect the equilibrium price (PE) and
quantity of GOOD X (QE). a) Price of related good {Y} decreases [The cross price elasticity of demand (Exy) is
– 2]

b) Simultaneously, popularity of good x decreases and there is an increase in the price of key input in the
production of good x.

9. Are the following statements true or false? Explain your answers.

a) “Isoquants are always L-shaped.”

b) “A bandwagon effect is an example of negative network externality in which a consumer wishes to possess a good
in part because others do.”

c) “The demand for washing machines is more elastic in the short run than the long run.”

10.a) Complete the following table:

b) Draw the marginal product of variable input and comment on its shape.

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