Question

1) The following equations show the supply and demand for kale burgers: Od 40-3P 10+2P a) Calculate equilibrium. b) Due to a Kale tariffs, suppliers are only willing to sell for $4 more (hint: solve for P first) Calculate new supply and new equilibrium. c) Graph the change from (a) to (b) in one graph. d) Calculate the elasticity shown by the above change. Explain what it means and classify the elasticity 2) At a pizza party with pizza (P) and wings (W), MU MUIy - RY a) What is the law of diminishing marginal utility? Show it using 4 and 9 wings. b) Graph the indifference curve associated with U-6 using at least 3 points on the graph. (Put P in the x-axis.) c) Calculate MRS. What is diminishing MRS? Give an example using all three points in (b) above.

Answer 1

Q^d = 40 - 3P = > P = 40/3 - Q/3 Q^s = -10 + 2P = > P = 5 + Q/2 In equilibrium Q^d = Q^s Therefore 40 - 3p = -10 + 2p 5p = 50 p = 10 Q = 40 - (3 times 10) = 10 Therefore p^z = 10 After tariff new supply curve: Q63 = -10 + 2 (p + 4) Q^s = -2 + 2p Therefore P = Q/2 + 1 in new equilibrium: 40 - 3p = -2 + 2p 5p = 42 p = 8.4 Q = 40 - (3 times 8.4) = 14.8 \r\n After tariff equilibrium P^* = 8.4 Q^* = 14.8 % changes in price = (8.4 - 10) times 100/(8.4 + 10)/2 = -17.4% % changes in quantity = (14.8 - 10) times 100/(14.8 + 10)/2 = 38.71% By mid point electricity method price elasticity of demand = -38.71/17.4 = -2.22 Therefore Vertical-bar elementof_0 Vertical-bar = 2.22