EC1002 Assignment 1  Consider the demand functions
Business Finance  Economics ec1002 assignment needed in 3.5hours
EC1002 – Assignment 1
Section A – Multiple Choice Questions (2 marks each; total 20 marks). Please insert your answer into the table at the end of this section.
1. Consider the demand functions:
Consumer A: Qd = 250  2P
Consumer B: Qd = 300  3P
Which of the demand functions reflect a higher level of consumer income?
A) A
B) B
C) A and B reflect the same consumer incomes.
D) More information is needed.
2. The figure below shows a graph of the market for pizzas in a large town. No pizzas will be demanded unless price is less than _____________.
A) $0
B) $12
C) $5
D) $14
3. Answer this question using the same graph in Question 2 above. Suppose that concern over dietary habits has led the government to impose a restriction that limits suppliers to produce no more than 40 pizzas. What will the price of pizza be as a result of this quota?
A) $2
B) $7
C) $10
D) $8
4. What is the total market supply, Qs, for luxury sports cars in the UAE if the only three suppliers’ inverse supply functions are:
P = 10 + 5Qs1,
P = 20 + 5Qs2,
P = 5Qs3
A) P = 2 + (3Qs / 5)
B) P = 10 + 15Qs
C) Qs = 6 + (P / 15)
D) Qs = 10 + (P / 15)
5. The above figure shows three different supplyanddemand graphs. Which graph best represents the market for vacations on Mars?
A) Graph A
B) Graph B
C) Graph C
D) None of the above.
6. Suppose the demand for coffee can be represented by a linear demand curve. At the current market price, the income elasticity of demand for coffee is 2. When income rises, the demand curve for coffee ________.
A) becomes less elastic at the price that prevailed before the change in income
B) becomes less elastic at every price
C) becomes more elastic at every price
D) becomes more elastic at the price that prevailed before the change in income
7. The market demand for wheat is Q = 100  2p + 1Pb, where Pb is the price of barley. If the price of wheat is $2, the price elasticity of demand __________.
A) equals (1)
B) equals (4/46)
C) equals (46)
D) cannot be calculated without more information
8. The market demand for wheat is Q = 100 – 2Pw + 1Pb + 2Y. If the price of wheat, Pw, is $2, and the price of barley, Pb, is $3, and income, Y, is $1000; the income elasticity of wheat is __________.
A) 2
B) 2 × (1000/2099)
C) 1/2 × (1000/2099)
D) Cannot be calculated from the information provided.
9. Suppose the inverse demand curve for a good is expressed as Q = 50 – 2P. If the good currently sells for $3, then the price elasticity of demand is __________.
A) 2 × (50/3)
B) 3 × (2/50)
C) 2 × (3/44)
D) 3 × (44/2)
10. If two indifference curves were to intersect at a point, this would violate the assumption of _________.
A) transitivity
B) completeness
C) Both A and B above.
D) None of the above.
Section B – Short Answer Questions. Answer all questions.
11. Suppose the market for potatoes can be expressed as follows:
Supply: = 20 + 10p
Demand: = 400  20p
Solve for the equilibrium price and quantity. (4 marks)
12. Suppose that the supply and demand of wheat depend on the price of wheat ( p), the amount of annual rainfall ( r), and the level of disposable consumer income ( I). The equations describing the supply and demand curves are given by:
QS = 20 r + 100 p
QD = 4000  100 p + 10 I
Sketch a graph of the supply and demand curves for wheat and show the effects of an increase in the quantity of rainfall. How does each curve shift (if at all) from the increase in rainfall? What does this shift do to the equilibrium price and quantity (increase/decrease)? (5 marks)
13. Assume the market demand for wheat may be written as:
Q = 45 – 2Pw + 0.3Y + 1Pb
where Y refers to income and Pb refers to the price of barley. Assuming that wheat and barley both sell for $1, and income is $20, calculate the price elasticity, crossprice elasticity and income elasticity for wheat. (6 marks)
14. Suppose the market for grass seed can be expressed as:
Demand: Qd = 100  2p
Supply: QS = 3p
If government imposes a $5 specific tax to be collected from sellers, what is the price consumers will pay? How much tax revenue is collected? What fraction is paid by sellers? (5 marks)
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Solution: EC1002 Assignment 1  Consider the demand functions