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Question 1 (10 pts) Consider the following market. Demand is given by Qp 5-P where Qp is the quantity demand and p is the price. Supply is given by Qs - F where Qs is the quantity supplied. a. What is the market equilibrium quantity and price? b. Calculate consumer, producer, and total surplus. Depict your answer in a graph. c. Suppose the government imposes a price floor of P- 4. Calculate the consumer surplus, producer surplus, and deadweight loss. Depict your answer in a graph. Question 2 (15 pts) A consumer has preferences represented by the utility function ux.y) - tyt. (This means that a. What is the marginal rate of substitution? b. Suppose that the price of good x is 2, and the price of good y is 1. The consumers income is 20. What is the optimal quantity of x and y the consumer will choose? c. Suppose the price of good x decreases to 1. The price of good y and the consumers income are unchanged. How much will the consumer increase his consumption of r after the price change? d. Based on your calculations in part b and e, what is the own price elasticity of demand for good x?
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Answer #1

civenthat A) market eauilibrium will be at that paint wheve suantity Oemand is ua to uantity supplied S-Pro-SD (0) consumev suvplus Totas sugaus =$1.39 t 2.75 CS 3.33 7 a.whe n apri ce cloor of Quontiy Demand-1 Price = Price σ£ supply-$2 Cansumer Sur plus(u)x(s-u) Pvodu čev Surplus = (u-2)*1+(112) 3 Dead co eight loss (,)-)4(1.67-1)HU-)$o.67 CS PS Ps 米

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