Reference no: EM13662584
Each response should have approximately a 20-30 word explanation.
1. Supply and demand: 10 points: Use the table below showing the quantity demanded and supplied of wheat at various prices. Then answer the questions. Remember you must give a complete written answer to each question.
Price Quantity demanded
(bushels of wheat)
Price Quantity supplied
(bushels of wheat)
$4.20 125,000 $4.20 230,000
4.00 150,000 4.00 220,000
3.80 175,000 3.80 210,000
3.60 200,000 3.60 200,000
3.40 225,000 3.40 190,000
3.20 250,000 3.20 180,000
3.00 275,000 3.00 170,000
A. What is the equilibrium price (P) and equilibrium quantity (Q) for wheat given the above data? Explain.
B. Suppose the price of wheat was $3.20 a bushel. Using the table above, would such a price lead to a shortage or surplus of wheat, and what amount (number of bushels) would the surplus or shortage be?
C. Suppose the government imposed a price floor for wheat of $4.00 a bushel. What effect would this have on the wheat market? Would there be a shortage or suplus of wheat and if so, in what amount? Explain.
2. Elasticity (10pts):
You must show all of your work where calculations are required and you must include a brief explanation of approximately 20-30 words in order to receive full credit:
a. Price elasticity of demand (6 pts): Suppose the Chicago Cubs find that when they raise the average ticket price from $40 to $46, average ticket sales per game fall from 34,000 to 32,000.
i) Please calculate the price elasticity of demand (Ed) for Cubs game tickets in this specific price range ($40.00 to $46.00). You must use the 'midpoint formula' we used in the text Please round your answer to the nearest hundreth (i.e. show at least two decimal points).
ii) Based on your answer above, is the price elasticity of demand for Cubs tickets elastic, inelastic, or unit elastic? How do you know?
iii) Please calculate the change in total revenue (TR) that would occur as a result of this price increase from $36 to $40. Be sure to indicate whether TR has increased or decreased in this scenario. You must show all of your work.
b. Cross elasticity (4pts): Suppose that the Chicago Cubs find that when they raise beer prices by 10%, quantity demanded of peanuts falls by 5%.
i) Calculate the cross elasticity between goods X and Y.
ii) Determine whether good X and Y are substitutes or compliments. How do you know?
3. Utility theory: 10 pts. Answer the following questions based on the table below showing the marginal utility schedules for product X and product Y for a hypothetical consumer. The price of product X is $4 and the price of product Y is $2. The income of the consumer is $20.
Q of X
TU MU MU/P Q of Y
TU MU MU/P
0 0 --- --- 0 0 --- ---
1 32 1 24
2 60 2 44
3 84 3 60
4 104 4 72
5 120 5 80
a. Fill in the columns for MU and MU/P for each product. Make sure you explain your answers.
b. What combination of X and Y will maximize the utility of the consumer? Explain your answer. Verify that the combination satisfied the utility maximizing principle.
c. What is the total utility the consumer receives at the utility maximizing combination of X and Y? Explain